Barclays analysts have shifted their stance on European equities, now favouring Value stocks while moving to a neutral view on Quality factors. The firm argues that ongoing reflation trends are set to benefit Value through 2026. Meanwhile, Quality stocks have become fairly priced after a recent cheapening, but lack the catalysts needed to regain their lead.

Quality strategies faced their worst performance in two decades last year as investors rotated heavily into Value sectors. Barclays noted the technical backdrop has soured, with the relative strength index moving into a 'sell-the-rally' phase. The bank also cautioned that traditional Quality screens, which look for high returns on equity and low leverage, are increasingly selecting companies facing macroeconomic headwinds like healthcare and consumer staples.

Conversely, Value stocks trade near long-term averages despite recent gains, supported by improving economic data and a synchronized global recovery. This environment undermines Quality's defensive appeal. Barclays also holds a positive view on Small Caps due to decade-low multiples and upgraded Yield strategies for income in a higher-rate world.