Barclays has warned that equity markets face a potentially turbulent summer as rising real rates and a stronger dollar prompt a rotation away from this year's momentum winners, though falling oil prices could limit further hawkish repricing. Analyst Emmanuel Cau told clients that markets continue to adjust to a new Fed reality following a hawkish interpretation of Federal Reserve Chair Warsh's first meeting. The bank said real rates have broken out of their year-to-date range while the dollar has surged, tightening financial conditions and driving risk-off sentiment. With a September Fed hike looking more likely now, but a still unclear Fed reaction function under new chair Warsh, volatility could remain high during summer. The rotation has hit year-to-date momentum winners hard, with stocks in the technology, AI and commodity space seeing some profit taking, while laggards such as defensives and quality finally caught a bid. Barclays cautioned that the end of the global easing cycle is a risk for equities into the second half, adding that investors may continue to question central banks' willingness to support markets given high inflation and resilient growth. On semiconductors, strong results from Micron provided reassurance that AI demand remains very strong, suggesting investors are likely to stay in buy the dip mode.
Dynex Capital IncRising real rates and hawkish Fed stance tighten financial conditions, pressuring rate-sensitive sectors like mortgage REITs.
Barclays PLC
Micron Technology IncStrong Micron results reassure that AI demand remains very strong, supporting the stock.