Barclays highlighted that strong second-quarter earnings have helped support equity markets amid ongoing economic uncertainties, but early indications that tariffs may be starting to weigh on U.S. growth could prompt the Federal Reserve to move sooner than expected.
“[The] majority of the Q2 earnings is done and results have generally managed to clear a low bar,” Barclays noted, adding that “US numbers have been stronger aided by Big Tech,” which helped push U.S. stocks to fresh highs last week.
The bank singled out Nvidia’s August 27 earnings release as the next key event to watch for the artificial intelligence sector.
Although “corporates have been largely adept at managing the impact from tariffs so far,” Barclays cautioned that “tariff uncertainty hasn’t completely disappeared given erratic policy-making under Trump,” and the full economic consequences remain uncertain.
With payroll revisions suggesting a cooling labor market and softer ISM data, Barclays said there is “early evidence US growth is slowing,” triggering “a sharp repricing lower in Fed rate expectations.”
The bank pointed out that markets a week ago priced in 1.3 rate cuts by year-end; now that number has risen to 2.4 cuts, with a 95% chance of a September cut.
Still, Barclays remains “not convinced a September cut is guaranteed,” citing a low unemployment rate and anticipated upward pressure on goods inflation.
The upcoming U.S. consumer price index report is seen as “a key catalyst,” with a hawkish reading potentially reinforcing the current preference for quality and growth stocks, while a softer inflation print could solidify expectations for rate cuts and boost equities.
Barclays also flagged Fed Chair Jerome Powell’s speech at the Jackson Hole symposium (Aug. 21-23) as a potential market mover, especially amid “tensions at the Fed and Trump’s criticism.”
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