© Reuters. Are European stocks in a bubble? BofA sees 15% downside risk
Investors have been sounding alarms about the risk of a stock bubble in the wake of a 35% rise in global stocks that drove them to unprecedented levels and reduced the global equity risk premium to a 20-year low. 3.5%.
But despite this substantial rise, strategists at BofA Global Research said on Friday that there are “few signs of a bubble,” given that the current rally has been driven by relevant fundamentals, rather than unusual catalysts.
That said, the broker is not bullish on European stocks. According to their analysis, these stocks “trade in a narrow sweet spot where growth data is strong enough to keep risk premiums near historic lows, but weak enough to allow the market to believe that the disinflation experienced last year will be greater. kept.”
“In our base case, we expect these Goldilocks prices to be disrupted by weakening growth momentum, resulting in wider risk premiums and lower earnings per share expectations going forward.”
In light of persistent growth that exceeds expectations, the subjective probability assigned to the BofA base case has been reduced.
This adjustment leads to a moderate and somewhat delayed forecast of the next macroeconomic weakness.
As a result, the expected low point for Europe's index is adjusted upward from 390 in June to 420 in October, representing a decline of almost 15% from current levels.
“We remain negative on cyclicals versus defensives, with a projected cyclical underperformance of 10% for October,” the analysts added.
