European Equities Set for Another Year in Wall Street’s Shadow
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(Bloomberg) -- European stock bulls looking for the region’s equities to close the gap on superior returns in the US next year are set for disappointment.
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The Stoxx Europe 600 Index will end 2025 at 535 points, Bloomberg’s survey of 20 strategists showed, indicating gains of less than 3% from Wednesday’s close. Compare that with forecasts for the S&P 500 Index to rise 7.5% on average, and as much as 17% under the most bullish outlook.
While the Stoxx 600 has climbed over 8% this year, it is still heading for one of its worst annual performances against the S&P 500 on record. Political turmoil in France and Germany and sluggish growth have left European equities struggling to keep pace with US stocks buoyed by a resilient economy. Meanwhile, Donald Trump’s potential trade tariffs loom as an additional headwind for Europe.
For Frederic Dodard, head of asset allocation at State Street Global Advisors Ltd., European companies have healthy balance sheets and attractive valuations in their favor. That supports modest projections of share-price gains for next year.
“However, the political uncertainty and the strong performance of US equities are not helping European equities to regain momentum, so we are constructively cautious on the region,” he said.
The Bloomberg survey also offers comfort for investors in that relatively few strategists predict major declines for the Stoxx 600, with 85% of forecasts seeing the index closing out next year at or above 530 points.
Strategists at Citigroup Inc. and Deutsche Bank AG were the most optimistic last year sharing a 510 target and are poised to be the most accurate in their prediction for 2024. Coincidentally, they are also among the most bullish for the year ahead, forecasting gains of 10% and 13%, respectively.
Citigroup’s Beata Manthey said her call is underpinned by “solid but below consensus” corporate earnings growth. Fewer companies are reducing forecasts and stock valuations are rising, even against the backdrop of threatened US tariffs.
“We are encouraged by the fact that our proprietary earnings revisions index for continental Europe has moved back to neutral levels from recessionary readings back in September through October,” Manthey said. “This implies a bulk of the cuts is behind us.”
In fact, earnings growth expectations for next year are spooking some market participants. So-called bottom-up estimates for 2025 from analysts studying individual companies see earnings-per-share growth of 8% for Europe. That’s only slightly shy of projections for the US and seems overly optimistic to many strategists, especially with the euro area economy tipped to grow by just 1.1%.