European Equity Strategy: Riding out the bond storm

Research evidence excerpt

European Equity Strategy: Riding out the bond storm

Equity Research

Equity Strategy

20 May 2026

European Equity Strategy

Riding out the bond storm SIGNATURE

Earnings strength is key for equities to absorb rising yields.

Higher for longer may be back to the old normal, & while fear

of CBs' tightening & fiscal loosening can fuel volatility, real European Equity Strategy

rates remain low. Long Value, but beware of CTAs' extended Emmanuel+44 (0)20 3134Cau,0475CFA

emmanuel.cau@barclays.comduration shorts. So if oil drops, expect broadening.

Barclays, UK

Earnings have shielded equities against rising yields. Equity gains ytd have been driven Magesh Kumar Chandrasekaran, CFA

+44 (0)20 3134 5983primarily by strong earnings. Solid Q1 results pushed EPS growth to multi-year highs across US

magesh.kumarchandrasekaran@barclays.com

and EU, triggering sizeable FY26 upgrades well above typical annual trends, albeit concentrated Barclays, UK

in a narrow set of sectors such as Energy and Semis. Earnings cushion has so far allowed

equities to absorb higher yields, which have risen on the back of resilient US data, and not just Emmanuel Makonga

+44 (0)20 7773 2593for the 'wrong reason' of inflation pressure. As long as reflation backdrop and earnings

emmanuel.makonga@barclays.com

resilience hold, TINA should continue to favour equities vs. bonds. Barclays, UK

Yields near the danger zone for equities...but it may just be a return to the old Arihanth Bohra Jain

normal. With bond volatility rising and the US 10y breaking above 4.5%, rates are approaching +91 (0)22 6175 1406

the pain threshold for equities. Markets are pricing a more hawkish Fed and ECB amid rising arihanth.bohrajain@barclays.com

Barclays, UKinflation risk, while concerns about DM fiscal loosening are pushing up term premia.