Investing.com -- Barclays is warning that markets face “negative summer seasonality,” as August and September typically bring elevated volatility, with policy uncertainty and rising rates adding to investor unease.
“Policy uncertainty keeps markets on edge,” Barclays wrote in a note titled Summer anxiety, cautioning that “hedging seems wise” given that stocks are near their highs and the macro backdrop remains “noisy.”
The firm highlighted slow progress in ongoing tariff negotiations, noting that while a deal with Indonesia was reportedly reached, “uncertainty persists for the EU ahead of the August 1st deadline.”
The potential for a 30% tariff on EU goods remains a concern. Although the market reaction has been muted, Barclays said this “arguably reflects a degree of investor complacency,” with the VIX near year-to-date lows.
“A full implementation of 30% EU tariffs would certainly lead to a deeper economic slowdown, and badly hurt the prevailing TACO trade,” analysts warned.
Apart from trade, yields have risen due to stronger U.S. goods CPI and fiscal worries.
Barclays cited “concerns around ballooning fiscal deficit and Fed chair Powell’s position contributing to investor unease.” Although President Trump later denied firing Powell, the headlines unsettled investors.
Despite these risks, Barclays said “growth and earnings fundamentals continue to backstop the equity market.” U.S. economic surprises have turned positive, and Q2 earnings have shown “corporate resilience.”
“We continue to see a path for European equities to break out and reach new highs by year-end,” Barclays wrote, “but it might not be smooth sailing to get there.”
The bank recommended downside hedges, particularly in the FTSE 100.
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