Barclays Cited Three Reasons to Stay in Stocks Amid Rising Treasury Yields

Despite rising yields on U.S. Treasury bonds and a renewed increase in energy prices, Barclays strategists believe investors should not sell their stocks, according to MarketWatch.

“If you were to judge solely by the headlines, the obvious solution would be to reduce risk and wait for clarity. We’re not doing that,” wrote the team of strategists led by Barclays Head of Research Ajay Rajadhiyaksha.

Barclays strategists cited three key reasons for the attractiveness of the stocks:

Corporate profits in the U.S. rose by 30% in the second quarter, strategists noted. Given that all sectors—with the exception of healthcare—reported higher profit margins in the last quarter compared to the same period last year, there are already signs that the economic impact extends beyond just hyperscalers, writes MarketWatch.

Barclays believes that the investment cycle in the artificial intelligence sector should drive further stock price growth. The bank expects capital expenditures by hyperscalers to exceed $1 trillion next year and approach $1.5 trillion in 2028.

Analysts also predict that by 2027, 20% of spending on artificial intelligence infrastructure will come from third-party partners and investors other than tech giants, whereas this figure stands at just 6% this year.

The strategists added that the resilience of U.S. consumer spending is likely to have a positive impact on yields.

"The U.S. economy is proving to be less sensitive to high interest rates than feared. And U.S. consumers are still spending," they wrote.

According to Barclays’ estimates, the risks for investors remain “real and very tangible.” Experts cited a decline in the yen’s exchange rate and the possibility of unforeseen events that could disrupt the investment cycle as potential challenges.

"We're not ruling any of this out. But the totality of the evidence suggests we should bet on this cycle rather than walk away from it," the strategists emphasized.

Barclays recommends stocks in the U.S. technology, media, telecommunications, and industrial sectors due to their exposure to spending on AI and related infrastructure. Strategists predict that the bulk of earnings growth in the S&P 500 will come from these sectors.

As for European stocks, they maintain a positive outlook toward capital-intensive industrial companies, the technology sector, and the mining industry.

On Thursday, the yield on 30-year U.S. Treasury bonds reached 5.44%, hitting a high not seen since 2004, while the yield on 10-year bonds rose to 5.141%—a record high since 2007, according to MarketWatch. Investors are becoming increasingly convinced that the Federal Reserve will raise interest rates by a quarter point at its October meeting.

Against the backdrop of the ongoing armed conflict in Iran—which experts do not yet foresee ending—oil prices remain high. Brent crude, the benchmark grade, rose more than 4.7% on Thursday, surpassing $107 per barrel. The price of WTI crude oil futures jumped 4.6%, breaking through the $96-per-barrel mark.

This article was AI-translated and verified by a human editor