European Stocks Expected to Lag Behind US Peers in 2024

According to Yahoo News, the outlook for European equities in 2024 is becoming increasingly pessimistic, with strategists from JPMorgan Chase & Co. and Sanford C. Bernstein expressing concerns about the impact of a slowing economy and interest rate hikes. These recent comments support the view that European stocks will continue to underperform the US market in 2024. JPMorgan strategist Mislav Matejka predicts that the MSCI EMU Local Index, which tracks around 230 euro-zone companies, will close next year at approximately 256 points, a 2% decrease from current levels. Matejka anticipates a 'challenging' macroeconomic environment in the first half of the year. Despite rebounding in 2023 after a 13% decline the previous year, the Stoxx Europe 600 has underperformed the S&P 500 in dollar terms, partially due to the rally in the so-called Magnificent Seven technology giants. In contrast to the more optimistic outlook for US equities from Wall Street strategists, Bank of America's European team projects a 15% drop for the Stoxx 600 by mid-2024, while Barclays Plc anticipates 'a bumpy ride amid mediocre growth and high geopolitical uncertainty.' Matejka believes that the risk-reward for equities will improve once the Federal Reserve advances with interest rate cuts, especially if this occurs without significant consumer and labor deterioration. Until then, the chances of an economic slowdown or accident are likely to be elevated. Bernstein strategists Sarah McCarthy and Mark Diver expect slow earnings growth as the economy adjusts to this year's rate hikes, but they see approximately 9% upside for regional stocks, as they believe the asset class has already priced in a potential recession. They recommend utilities, banks, energy, autos, and household and personal goods as sectors to watch.