In a note on Monday Deutsche Bank downgraded European stocks to neutral.
DB are wary in the short term:
- “We expect markets to go mostly sideways with a mild setback of not more than 5% from current levels, predominantly in parts of the market that have seen the biggest inflows in the fourth quarter of last year,”
And look for supportive central bank moves on the way, more than is expected:
- “We continue to believe that the ECB and the Fed will cut faster and further than the market is currently pricing in,”
But, not yet!
- “However, we expect this to become apparent later this year, once central banks start to openly communicate planned cuts.”
Positioning is working against stocks:
- “Investor positioning in equities has increased substantially, and positive economic surprises have become fewer, especially in the U.S.,”
That mention of especially in the US lease wiggle room for Europe, though:
- DB remain bullish on European stocks throughout 2024, saying increased investor positioning does not appear to be in the overbought territory
- a short-term pullback in European stocks seems likely
- suggest corporate earnings may grow by 5% and price-to-earnings multiples may expand by 0.5 points due to potentially steady economic growth in China and a reacceleration of growth in the U.S. and Europe in the second half of 2024
- implies an upside of around 8% for European stocks in 2024