Even with a near-record discount rate for European stocks relative to the United States, some financiers still aren’t convinced. After starting the year with a lead over the S&P 500, the Stoxx Europe 600 has lost ground since May, and concerns about a regional recession have led to an exodus from European stock funds. Despite a 35% discount in Europe’s price-to-earnings ratio, which is nearly the lowest on record, Wall Street strategists don’t see the gap closing any time soon. In fact, forecasters from Bank of America and Deutsche Bank predict the S&P 500 will hit a record high in 2024, while Europe’s earnings are expected to increase by only 6.7% compared to 11% in the United States. Marija Veitmane, senior multi-asset strategist at State Street Global Markets, notes that while European stocks are relatively inexpensive, they tend to underperform in an economic downturn.
There’s bearish sentiment about European stocks, with Societe Generale predicting no gains at all next year amid a financial downturn and a potential 10% decline early in the year. Outflows from European stock funds have also exacerbated the bearish mood, and even those who anticipate the Stoxx 600 to rise next year expect most of the buying to come from within Europe via corporate buybacks. While there is recognition of the “reasonable valuations” in Europe, sentiment remains cautious, and investors are skeptical about the prospects for European stocks compared to U.S. equities.
