Goldman Sachs Group Inc. strategists project a favorable outlook for European stocks in the coming year, driven by an anticipated improvement in the economic landscape.
The team, led by Sharon Bell, anticipates an upswing in household spending power and a diminished risk of a severe economic downturn. This optimism stems from a quicker-than-expected easing of euro area inflation, which is expected to lead to an increase in real wages, thereby benefiting consumers.
Additionally, this inflation cooling is seen as a potential catalyst for interest rate reductions, further mitigating the risk of a deep recession.
The strategists are bullish on the performance of European equities in 2024, citing an improved economic backdrop, reasonable valuations, and a stable outlook for long-term bond yields as key factors.
They predict the Stoxx Europe 600 index to reach the 480 level over the next 12 months, marking a potential 7% increase, albeit still below its peak in January 2022. This growth forecast comes amidst investor anticipation of an end to central bank tightening and the avoidance of a significant economic slump.
Bell’s team views European equity valuations as relatively modest, maintaining a significant discount compared to U.S. counterparts. This gap, they believe, reflects weaker European economic growth and a higher risk premium for European shares.
However, they also note that the current valuation gap suggests that concerns about Europe’s economic outlook might already be factored into prices.
Despite this positive outlook, the strategists express skepticism about a sharp resurgence in inflows to European stocks, especially considering the attractive yields now offered by other assets.
They anticipate that the primary drivers for purchasing European stocks will continue to be internal, through buybacks, and expect mergers and acquisitions to gain momentum if interest rates stabilize and recession risks keep diminishing.
Featured Image – Freepik
Author Kristen Moran 
