Investing.com -- European markets in November rebounded after an initial selloff triggered by the US elections, although factor performance, with the exception of Momentum, remained relatively subdued.
Barclays (LON:BARC) strategists had maintained a Positive stance on the Momentum style for most of the year but downgraded it to Neutral before the US elections. This decision was driven by expectations that a Trump victory and a Republican sweep could bring back rates volatility. While rates volatility and yields initially rose post-election, both have eased in recent weeks.
"This has led to a strong performance of Momentum style post election, although it is starting to show cracks in the last few days," the strategists led by Matthew Joyce said.
However, they note that the year-over-year change in US yields has now turned positive, which has historically created a headwind for Momentum. As a result, they are maintaining a Neutral stance on the style this month.
Improving macroeconomic data and supportive government and monetary policies provide an optimistic backdrop. The uptick in ISM this month, driven by robust internal measures like New Orders, Prices Paid, and Employment, signals a potential recovery in broader activity indicators.
Further, the rebound in the US labor market following last month’s disruptions from weather and strikes is seen as a positive development.
"Coupled with reflationary government policy in the US, and a continuation of the global rate cutting cycle, we think the set-up into next year looks positive, with the economic cycle likely to extend," strategists stated. “We therefore want to remain positioned for this outcome.”
Historically, the 12 months following US elections tend to see a shift from defensive to cyclical sectors and styles.
Barclays strategists have been positioning for this trend, upgrading cyclical Value from Negative to Positive in recent months. They continue to hold a Positive view on cyclical Small Caps and remain Negative on defensive Low Volatility stocks.