Deutsche Bank downgrades European stock market outlook amid interest rate uncertainty
Deutsche Bank strategists downgraded European stocks to neutral on Monday, citing “little” room for upside for stocks in the coming weeks and uncertainty about the monetary policy outlook of major central banks amid a shaky start to 2024 for financial markets. I heard.
“We expect the market to move mostly sideways, with a slight pullback of less than 5% from current levels,” said Deutsche Bank strategist Maximilian. Uleer, head of European equity and cross-asset strategy, said in a note on Monday.
In October, the bank gave European stocks an overweight rating for 2024, saying rising bond yields and disappointing corporate earnings reports have weighed on stocks and hinted at upside for stocks. European stocks have rebounded toward the end of 2023 amid growing optimism that the European Central Bank and Federal Reserve will cut interest rates faster and faster than the market had previously expected.
“We continue to believe that the ECB and the Federal Reserve will cut interest rates faster and more deeply than markets are currently pricing in,” UIeer and his team wrote on Monday. “But we expect this to become clear later this year once central banks begin to publicly communicate their planned cuts.”
The continued year-end rally leaves limited upside for equity markets in early 2024, according to Deutsche Bank strategists. “Investor positioning in equities has increased significantly and the number of positive economic surprises has decreased, especially in the United States,” they wrote.
see: Why stock market investors will still be at the mercy of changing interest rate cut expectations after a rocky start to 2024
Despite the downgrade, the bank’s strategists remained bullish on European stocks throughout 2024 as increasing investor positioning does not appear to be in overbought territory.
Uleer and his team said on Monday that European stocks are likely to fall in the near term. However, steady economic growth in China and a reacceleration of growth in the US and Europe in the second half of 2024 could boost corporate profits by 5% and expand the price-to-earnings ratio by 0.5 points. This means European stock markets could rise by around 8% in 2024, they noted.
European stocks posted their first weekly loss in eight weeks on Friday as investors digested a strong U.S. jobs report that suggested there was no urgent need for the Federal Reserve to cut interest rates as markets had expected. The STOXX 600 Index XX:SXXP posted a slight gain of 0.4% on Monday.
In US markets, Deutsche Bank is the most optimistic of Wall Street’s 2024 forecasts for the S&P 500 SPX.,
With calls for the benchmark index to reach 5,100 by the end of the year. That’s up about 7.8% from Monday afternoon’s level of 4,732, according to FactSet data.
U.S. stocks were mostly higher on Monday as Wall Street looked to recover after a ninth straight week of gains on Friday. The Nasdaq Composite Index COMP rose 1.5% to 14,746, while the Dow Jones Industrial Average DJIA was nearly flat at 37,459, according to FactSet data.
see: UBS joins Wall Street strategists calling for new S&P 500 record in 2024
