Citigroup strategists increased in a recent research note their increasing optimism towards European stocks, which recorded the best quarterly performance ever in the fourth quarter of last year, compared to its American counterpart after years of decline.
The bank’s team of experts recommended the research note to increase the relative weight of European stocks in investment portfolios, noting that the current assessments reflect expectations of a 15% decline in profits already. Citigroup strategists wrote in the research note that the United States is “approaching recession. They expected that the growth of its stock market would be weaker in the first half, and then get stronger in the second half.
They expected the “Standard & Poor’s 500” index to end the current year at 4,000 points, up 5% compared to current levels, and on the other hand, the “Stoxx 600” is expected to rise by 8%, bringing it to 475 points.
They pointed out that due to the recession that is currently looming in the United States, most investors are turning their backs on the shares of major American companies, as they focus more on their cheap European counterpart. They pointed out that the Stoxx 600 index trades at a profitability multiple of 12.2 times with the calculation of expected earnings, compared to the Standard & Poor’s 50 index trading at 16.6 times.
The bank’s strategic experts expected, according to the note, that corporate profits globally would decline by 5-10% this year, contrary to analysts’ current expectations of achieving a growth of about 3%.
Analysts have already started revising their expectations of an increase in the number of buy/sell recommendations, for both stocks in Europe and the US.
With major US banks, including JPMorgan and Bank of America, opening the earnings season next week, investors can assess the impact of rising interest rates, sharp inflation and slowing demand for corporate earnings.
The bank’s experts expected interest rates to reach their highest levels in the first half of 2023, and the possibility of starting to reduce them later this year. The research note emphasized that peak interest limits the damage from rising stock market valuations.
These recommendations come in the direction of Citigroup experts to anticipate a decline in the global market, and take into account factors such as stock risk premium, money flows, and the growth rate of capital expenditure, revealing 6.5 out of 18 potential warning indicators, and recommending buying in the event of a decline and not chasing Elevations, according to the research note.
The team of strategists at Goldman Sachs boosted the target level for 12 months for the Stoxx 600 index to 465 points, up 5.8% compared to last Thursday’s closing.
Their peers at Societe Generale, including Roland Kaloyan, said that European stocks, despite what appears to be higher prices than bonds, will attract buyers if the European index approaches 400 points.