Barclays Equity Outlook – Q3 2026

Barclays reaffirmed equities as its preferred asset class for the third quarter, arguing that an AI‑driven earnings cycle in the United States will outweigh concerns about stretched valuations. The bank raised its 2026 S&P 500 earnings‑per‑share (EPS) forecast to $337, up from $321, and lifted its price target to 7,800 points, citing solid technology earnings visibility, reflationary pressure supporting nominal revenue growth, and a relatively supportive industrial backdrop. For 2027, Barclays projects EPS of $389, implying a 15% increase over the 2026 estimate.

Earnings Growth Assumptions

Strategists led by Ajay Rajadhyaksha emphasized that “expensive is not the same thing as wrong,” noting that equities can be fully valued and still outperform if the earnings trajectory holds. They stated that equities would only become a sell if earnings growth collapses, and they see no plausible catalyst for such a collapse in the current quarter.

Sector Preferences

Within equities, Barclays favours sectors with clear leverage to the AI investment cycle:

  • Technology
  • Media and Telecoms
  • Industrials
  • Utilities

It downgraded financials to neutral due to concerns about private‑credit exposure and AI‑related disruption, upgraded healthcare to neutral, and kept a negative stance on consumer stocks, citing lagging spending‑power pressures that could worsen in the second half of the year.

International Perspective – Japan

Outside the United States, Barclays highlighted Japan as the best risk‑adjusted opportunity for investors seeking AI exposure. The rationale includes the Nikkei 225’s more diversified composition relative to Korea and Taiwan, ongoing structural reforms, rising dividend yields, and the unwinding of cross‑shareholdings.

Fixed‑Income View

Barclays expressed a considerably more cautious view on government bonds. Sovereign issuance across the OECD is on track for a new record this year, while the buyer base has shifted away from central banks toward more price‑sensitive investors. The term premium on long‑dated Treasuries has risen to its highest level since 2011. Barclays now expects 10‑year U.S. Treasury yields to climb to 4.65% over the next year and recommends investors stay underweight long‑duration sovereign bonds globally.

Macro‑Volatility Outlook

The bank flagged increased macro volatility following the Federal Reserve’s first meeting under Chair Warsh, which signalled a more inflation‑focused reaction function and a desire to reduce forward guidance. This makes monetary policy less predictable and more sensitive to individual data releases. Barclays warned that markets are just beginning to price this transition, anticipating a wider distribution of policy outcomes, greater event risk around FOMC meetings, and uncertainty around the Fed’s balance‑sheet review, all of which should contribute to structurally higher rate volatility.