Strategists throw in the towel on a year-end stock market rally in Europe

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(Bloomberg) – Strategists are skipping a year-end rally for European stocks.

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Forecasts for the Stoxx 600 index have fallen about 5% over the past month, according to the average of 16 estimates from a Bloomberg survey. Strategists now see the benchmark ending the year at 427 points, implying gains of less than 5% from Wednesday’s close. Using the middle view of 418, the upside potential is even smaller.

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The strategists’ gloomy outlook comes at a difficult time for a region struggling with runaway inflation, a hawkish central bank, an energy crisis and fears of recession. Nine of the companies surveyed have lowered their forecasts since the August poll and, based on the current average, the index is heading for a 13% annual decline. That would be tied with 2018, one of the worst years in over two decades.

“The sustainability of any rally is called into question in the current environment by the fact that neither politics nor fundamentals are expected to improve any time soon,” said Barclays strategists led by Emmanuel Cau. They cut their Stoxx 600 target to 390 from 465 this month, bringing them in line with their peers at Bank of America Corp. and Goldman Sachs Group Inc.

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Other companies that have lowered their Stoxx 600 forecasts since the last survey include Bayern LB, Deka Bank, NN Investment, Pictet Asset Management and UniCredit SpA.

Bank of America strategists had cut their target the previous month on the prospect of an accelerating economic contraction. “We expect the drag from weaker growth to outweigh rising equity multiples due to falling real bond yields, as central bankers’ attention shifts from inflation concerns. growth concerns,” BofA’s Milla Savova said in written comments this week.

According to peers at Goldman Sachs, the European stock market averages a bottom when stocks reach a forward price-earnings multiple of 9.5 times, 13% below the current level.

Investors take an equally pessimistic view. According to the September survey of fund managers by Bank of America, allocations to eurozone equities fell to a net underweight of 42%, the lowest value on record. Meanwhile, shareholders withdrew $81 billion from equity funds in the region in 31 consecutive weeks of outflows, the longest streak since 2016.

Yet not everyone has a negative opinion. JPMorgan Chase & Co. strategists led by Mislav Matejka are among those most bullish on the region.

“Earnings could act better than usual, and a potential recession could be shallow,” Matejka wrote in a note this week, also pointing to fiscal stimulus, the potential for lower gasoline prices and a strong valuation discount in the US as potential bright spots. .


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