Barclays says these three themes now worrying investors

Investing.com -- Investor anxiety is rising around three key issues, including Federal Reserve rate cuts, AI financing and the labor market, even as U.S. corporate earnings continue to outperform expectations, according to Barclays analyst Venu Krishna.

In a note on Tuesday, Krishna said “concerns are mounting over Fed cuts, AI financing and the labor market,” noting that sentiment has softened despite another strong quarter of results.

The bank called the third-quarter earnings season “almost a redux of last quarter, with better headline numbers.”

Earnings per share grew 15.2%, while sales growth improved to 6.8%, and the “breadth and depth of surprise once again came in above the LT trend,” Barclays stated.

But even with strong profits, investor confidence has been dented by policy and funding worries, according to the bank.

Krishna pointed out that “‘animal spirits’ have faded somewhat in response to AI capex/financing concerns and doubts over a December Fed cut.”

The note added that the S&P 500’s next-twelve-month price-to-earnings ratio has now “dipped below 22x,” as questions build around whether the Federal Reserve will delay easing.

AI remains a dominant topic across corporate commentary. Barclays’ analysis of earnings transcripts found that “AI remains front and center, particularly discussing AI in the context of efficiency, not costs.”

Labor-market unease is also said to be creeping into management discussions. Barclays wrote that mentions of “credit concerns and workforce reductions rose marginally,” even as earnings strength broadened beyond Big Tech.

Despite the mounting worries, Barclays argued that rising estimates “frame attractive entry points for Big Tech, Financials and Utilities,” even as valuations across parts of tech remain stretched.

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