By Danilo Masoni and Samuel Indyk
MILAN (Reuters) – A record rally in European shares has made them more vulnerable to possible pullbacks in late 2024, although the region’s economic recovery and the start of a rate-cutting cycle appear to push them back to new levels. peaks in 2025.
Fund managers and equity strategists interviewed May 13-22 see the STOXX 600 index at 513 points by the end of 2024, implying a 1.9% decline from Tuesday’s close.
The regional index, which houses popular large-cap stocks such as pharmaceuticals Novo Nordisk and technology group ASML, is expected to rise again in 2025, reaching 537 at the end of June and an all-time high of 556 at the end of the year.
Meanwhile, the Euro STOXX 50 index is expected to remain immobile for the rest of the year, while in 2025 it is expected to resume its rise to reach 5,400 at the end of December, approaching the record high of 5,522 set in March 2000.
“European equities have had a strong first half of the year and it is possible they will take a break during the summer months,” said Moz Afzal, Global CIO at EFG Asset Management in London.
“That said, falling inflation, bottomed-out growth and a less restrictive monetary policy mean that economic fundamentals are in place for a strong 2025.”
Some 73% of respondents – eight out of 11 – said a correction of more than 10% in their local stock market over the next three months was unlikely, while 27% considered such a decline likely.
Year-end forecasts for the STOXX 600 range from a low of 435 to 600 points. In the bullish camp is Barclays strategist Emmanuel Cau, who remains “tactically” overweight in Europe.
“The region could benefit even more from the upcoming rate cuts and the resulting boost to activity,” he said.
At the other end of the spectrum is Andreas Bruckner, European equity strategist at BofA Global Research, who sees the index falling to a low of 450 in the first half of next year after a correction of more than 10% due to US economic weakness.
So far in 2024, STOXX is up about 9%, supported by heavyweight stocks, banking strength and, most recently, utilities and real estate, which have risen in anticipation of interest rate cuts in Europe. .
MULTIPLE ‘ATTRACTIONS’
Some respondents expect Europe to do relatively better than Wall Street if markets correct, thanks to its cheaper stock valuation and more diversified market.
The STOXX 600 trades at a discount of about 33.6% to the S&P 500, according to LSEG estimates on a price/earnings metric, which is nearly double the average discount over the past 20 years.
“Given that multiples are more attractive than in the United States, the European market is probably less prone to violent corrections,” said Enrico Vaccari, head of institutional sales at Consultinvest in Milan. “If inflation does not rise, the path to cuts in rates is marked. Markets are looking for it.”
Investors expect the European Central Bank to begin reducing borrowing costs from their current record highs at its next meeting in June. Markets are currently pricing in around 65 basis points of ECB rate cuts in 2024.
Polls also showed that Britain’s FTSE would fall 1.4% to 8,300 at the end of 2024, and then rise to a new record high of 9,300 at the end of 2025.
Similarly, Germany’s DAX is expected to fall to 18,692 points at the end of 2024 and then recover to a new peak of 20,250 at the end of next year.
Italy’s FTSE MIB, which has strong banking exposure, is expected to rise further to 36,498 by the end of 2024 and then reach 38,606 in 2025, the highest value since the end of 2007.
(Other stories from Reuters’ global equity markets research suite:)
(Reporting by Danilo Masoni in MILAN and Samuel Indyk in LONDON; additional research by Indradip Ghosh, Pranoy Krishna and Purujit Arun in BENGALURU; editing by Gareth Jones)
