The advances over the previous month coincided with both Bank of America Corp.(NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) lowering their year-end goals for regional equities, according to strategists, who believe the rally in European stocks has peaked.
The average of 15 projections in Bloomberg’s monthly survey predicts that the Stoxx Europe 600 Index will end 2022 at 447 points, representing gains of less than 2% going forward. A lot hasn’t changed since the last survey, despite the gauge increasing by over 3% since then. The European benchmark is predicted to decline 8% for the entire year, which would be a decline from 2018’s performance.
Bank of America strategist Sebastian Raedler anticipates the surge will fizzle out because the global economy is still experiencing “serious” difficulties. His Stoxx 600 year-end target of 390 is one of the most gloomy; it has been decreased by around 9% over the past month.
In a letter dated Aug. 12, Raedler stated that “the primary need for a durable equity market rally is a trough in the economic cycle and a renewed acceleration in growth momentum.” That won’t happen, he continued, due to the anticipated drop in economic activity and the impending energy crisis.
Despite a solid corporate earnings season and expectations that the Federal would delay the pace of rate hikes, the rebound from the lows witnessed in early-July lows has started to falter. The Fed is dangling between controlling inflation and halting growth, as per the minutes in its most recent meeting.
Recession Risk Creates Gloomy Outlook for European Stocks
Due to the risk of a recession, strategists like Beata Manthey of Citigroup Inc. have cautioned that the outlook for European stocks earnings is still gloomy. She projects a 2% decline in regional profits in 2022 and a 5% decline in 2023, excluding the UK.
The pessimistic sentiment is further supported by regional fund movements. In the week ending August 17, European equities funds lost $2.2 billion, marking the 27th consecutive week of redemptions, according to data cited by Bank of America from EPFR Global.
JPMorgan analysts have decreased their year-end prediction for the Stoxx 600 by 3% since the July poll. However, they remain zealous stock market bulls, arguing that the economic outlook has already been factored in and that any further negative news may be taken favorably, leading to a change in policy. Their revised goal calls for additional gains of 10% for the European benchmark index, which would result in a flat year-end compared to 2021.
Investors in Bank of America’s most recent survey of European fund managers agree with JPMorgan’s assessment that the equity market recovery can continue even if they anticipate declining profitability. However, the majority of strategists disagree.
Stock markets have become “too enthusiastic,” according to Matt Peron, director of research at Janus Henderson Investors, regarding the prospects for economic growth and the same rings true for European stocks. The market is signaling a slight downturn with little impact on earnings, but he argued that was premature.
Featured Image: Megapixl © Yanishevskaanastasiia
Author Jowi Kwasu 
