Barclays sees ‘decent set-up, many wild cards’ for European stocks

Investing.com — Barclays provided a mixed outlook for European equities in 2025, highlighting both opportunities and risks in a note to clients Wednesday. 

The firm describes the current market environment as a “decent set-up” due to resilient earnings, growth-focused central banks, and improved positioning following a recent pullback. 

However, several “wild cards,” including Trumponomics, inflation, and geopolitical tensions, could introduce volatility, according to the bank.

The analysts note that markets entered the year off their 2024 highs after a “hawkish recalibration” by the Fed and concerns about unpredictable Trump policies. 

Despite this, Barclays (LON:BARC) believes the fundamental drivers of the bull market, such as strong earnings and supportive central banks, remain intact. 

“Choppiness may persist into inauguration day, but less froth is healthy and may encourage capital deployment amid positive seasonality,” Barclays asserts.

The bank identifies the policy landscape as a significant source of uncertainty. They caution that the implementation of Trump’s policies, coupled with inflation and fiscal concerns, leaves little room for complacency. 

However, they see potential catalysts for European stocks, including a weaker euro, possible reforms in Germany, and additional stimulus in China.

“We think that low valuation/positioning, a weaker euro, as well as potential for reforms in Germany, peace in Ukraine and more stimulus in China, likely improve the risk-reward for Europe,” wrote the bank.

Barclays maintains a selective bias towards cyclicals, recently upgrading sectors like Luxury Goods, Autos, and Tech. They favor exposure to dollar earners and Financials & Value stocks. 

Despite a cautious macro outlook, Barclays sees potential for modest re-rating in European equities if geopolitical risks diminish and the economic cycle extends.

Overall, Barclays says investors should be mindful of the complex backdrop, noting, “Valuations leave little margin for error overall, but are not stretched in Europe,” suggesting room for potential upside in European equities if certain risks are mitigated.