Investing.com -- Barclays analysts said in a note Friday that the long-standing market mantra of “don’t fight Trump” may remain relevant if trade negotiations continue to show signs of progress.
Despite markets already pricing in much of the expected de-escalation, the potential for more deals and fewer tariffs continues to buoy investor sentiment.
“Markets continue to be fed with drip feed of positive headlines on tariffs,” Barclays (LON:BARC) wrote in a weekly commentary.
The note pointed to the upcoming round of U.S.-China trade talks and the recent U.S.-U.K. trade agreement as evidence that “we are past the point of maximum tariffs pain/uncertainty.”
Even though the U.K. deal includes a 10% tariff and sparse detail, it helped strengthen the belief that trade tensions may be easing.
“More de-escalation and progress on deals within the 90-day relief period are helping markets to buy time on the recession endgame,” Barclays said.
Still, the optimism comes with caveats, according to the bank. “Rhetoric alone won’t push up stocks forever,” the firm cautioned.
Barclays notes that equity markets have already rebounded to “pre-liberation day levels,” suggesting that much of the anticipated good news is already priced in.
Meanwhile, “some tariffs fatigue is clearly visible,” and uncertainty surrounding the ultimate outcome of trade negotiations “likely [caps] further meaningful valuation upside,” wrote the bank.
Barclays also warned that while recent headlines may support a bullish outlook, “the bar for positive tariffs surprise has likely moved higher.”
However, with investors lightly positioned and earnings season largely complete, “the hope trade, while looking extended, may not be over.”
Ultimately, the analysts suggest that “more investors may fall in the camp of chasing the rally rather than fading it,” as long as there remains a path toward deal-making. “The ‘don’t fight Trump’ mantra is at work,” Barclays concluded.