Citigroup, July 10, 4:42 p.m
The discount of European stocks to US stocks rose to a historic high
Against this background, analysts give preference to European stocks, recommending them for purchase
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The discount of European stocks to US stocks rose to a historic high. Against this background, Citigroup upgraded the rating for Europe, while the rating for US stocks, on the contrary, was downgraded, transmits Bloomberg.
Analysts rated European stocks “Overweight” and US stocks “Neutral”. Thus, analysts associate higher expectations with the papers of European companies, counting on the fact that they will grow stronger than American ones.
“Europe is once again trading at a record discount and should benefit from a weaker dollar and any stimulus from China,” Citigroup said in a note.
In terms of a forward P/E multiple, the European Stoxx Europe 600 is trading at a 36% discount to the US S&P 500.
To calculate the forward P/E multiple, the company’s current capitalization is divided by the expected earnings. The lower the multiplier value, the better for the investor.
The record difference is due to the fact that in the first half of the year there was a rally in big tech in the United States, while the growth of European stocks was slowed down by higher rates and a slower-than-expected recovery of the Chinese economy. However, released on Monday, July 10, data on manufacturing disinflation and zero consumer inflation for June intensified expectations that the Chinese authorities will have to take measures to stimulate the economy.
In the US, by contrast, the market was dominated by optimism, with the S&P 500 up nearly 20% in the first half of the year. But such a high result was largely due to the growth of quotations of such IT giants as Apple, NVIDIA and Microsoft. Against this backdrop, Citigroup downgraded its forecast for the shares of the global IT sector. Analysts predicted a fall in big tech quotes, while saying that they would look for opportunities to buy during a drawdown in stocks.
The eternal “bear” Wall Street estimated the probability of a market collapse at 70%
An important factor for the US stock market will be the upcoming reporting season, which begins on Friday, July 14th. Analysts polled by FactSet expect S&P 500 earnings to fall 7.2% year-on-year. This is the largest drop since the second quarter of 2020, when due to the COVID-19 pandemic, profits decreased by 32%.
However, some market participants believe that the results of companies in the second quarter of 2023 will not greatly disappoint the market, given the weak forecasts of experts. This, in turn, could potentially give investors more confidence and encourage stock purchases.
Author: Marina Anufrieva.
2023-07-10 13:42:33
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