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Global equities are set to outperform core fixed-income assets next year, as threats of a global economic slowdown have declined, Barclays strategists said in a note on Thursday.

They pointed to equities holding up against a ‘higher-for-longer’ interest rate environment, thanks to a largely AI-driven rally in U.S. mega-caps as well as strength in the U.S. economy.

The S&P 500 index is up 17% so far this year, despite an uptrend in 10-year Treasury yield that saw it hit 16-year highs last month and the Federal Reserve’s 525-basis points worth of policy tightening since last March.

MSCI’s All Country World Index is up 13% this year.

“The downside risks to the world economy have diminished greatly. We think stocks will benefit from a fairly benign bottom to this business cycle and look through near-term earnings disappointments,” said Ajay Rajadhyaksha, global chairman of research at Barclays.

“We now turn overweight (on) global equities over core fixed income.”

Barclays expects mid-to-high single-digit equity returns in both the U.S. and Europe next year, even as bond yields stay elevated.

The brokerage earlier recommended cash over stocks and bonds.

Some Wall Street peers, however, are not as optimistic as Rajadhyaksha.

In a note earlier in the week, Goldman Sachs noted a ‘benign’ outcome for U.S. equities next year with a roughly flat market in the first half, as most of the optimism around economic growth has already been priced in.

Strategists at J.P.Morgan, meanwhile, noted that equities’ risk-reward globally, remained unattractive.

Restrictive monetary policy is likely to remain in place for some time, equity valuations are rich, the note from J.P.Morgan said.

“Consumers are likely to begin to retrench given a fading liquidity buffer, high rates across a range of consumer loan products, tightening lending standards, and rising delinquencies.”

JP Morgan had recommended commodities over stocks and bonds.

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