European Value stocks outperformed other factor exposures during the first quarter of 2026, according to Barclays Research, with the group registering average one-day moves of around 100 basis points on earnings days. That result left Value as the only factor in the European universe assigned a Positive rating by Barclays, which cited a combination of robust earnings delivery, improving earnings momentum and a structural negative correlation to Momentum as the rationale.
Blended earnings per share growth for Europe rose to roughly 7% in Q1 2026, the strongest quarterly pace since Q1 2023, Barclays calculated. The firm also found that the Value factor produced the largest aggregated one-day post-earnings price change among its European factors in the quarter - about 1% - while Growth names on aggregate fell by near 1.25% on earnings days.
Barclays' preference for Value comes as the Momentum trade shows signs of becoming overcrowded. As of May 6, Momentum crowding had reached the 80th percentile on a two-year basis, making it the most concentrated factor in Europe by that measure. Barclays warned that Momentum appears "increasingly crowded, arguing for managing exposure rather than adding." The bank also reported that the BC EU Momentum pair correlation with Value since the start of the U.S.-Iran conflict stood at about 40%, a relationship Barclays interprets as indicating that Value could be the cleaner beneficiary if market leadership broadens.
Valuation and positioning metrics supported Barclays' assessment. European Value's 12-month forward price-to-earnings ratio remains below its long-run average, and earnings momentum turned positive in early 2026. The factor's integrated crowding score was deeply negative, near 0.8 on a two-year percentile basis, sharply contrasting with Momentum's elevated positioning.
Sector composition is another element cited by Barclays. European Value is relatively overweight Financials and Cyclicals and underweight Technology versus the STOXX 600, a mix the bank described as leaving the factor "inexpensive after lagging the rates repricing." That sector tilt underpins the view that Value may benefit as earnings momentum strengthens and market leadership potentially rotates.
Geopolitics and energy markets add a further layer to the analysis. Barclays noted that the BC EU Yield long/short pair has given back roughly half of its gains tied to the conflict, roughly consistent with Brent oil not yet reflecting a full peace outcome. The bank commented that "further credible progress towards peace would mechanically add pressure on high yield given energy sensitive exposure," a dynamic that in Barclays' view would tend to favor Value over Yield in a de-escalation scenario.
By contrast, Barclays lowered its view on U.S. Value to Neutral. The S&P 500 had climbed more than 9% in April 2026 while Big Tech rallied over 16%, and U.S. Value experienced a 6.7% selloff over the prior month. Barclays attributed that weakness in part to U.S. Value's "defensive, anti-AI profile" being less compelling in a risk-on environment, against a backdrop where consumer sentiment remained subdued and the 10-year U.S. Treasury yield was 4.44% as of May 1.
Barclays also flagged seasonal considerations that could temper near-term performance for Value stocks. Its European factor seasonality data show that Value has historically returned an average of negative 0.3% in May, compared with average gains of 0.7% for Quality and 0.6% for Momentum. Despite that historical tendency, Barclays maintained its positive stance on European Value, pointing to the supportive earnings fundamentals highlighted in its research.
Implication for markets and sectors
Barclays' analysis underscores a potential rotation opportunity within Europe, where Financials and Cyclicals could see more supportive flows if Value leadership persists. The bank's stance contrasts with the U.S., where Value appears less attractive amid stronger performance from large technology names. Energy-sensitive credit and high-yield sectors also figure in Barclays' scenario analysis tied to geopolitical developments.