(Reuters) – Goldman Sachs raised its 12-month forecast for the pan-European Stoxx 600 index to hit the 500-point mark on expectations of a cut in interest rates, implying a gain of almost 6 % by the end of 2024.
The American investment bank previously forecast that the Stoxx 600 would only rise to 480 points at the end of next year.
The Stoxx 600, which is almost unchanged (-0.03%) Monday morning at 472.1 points, has gained more than 11% since the start of the year.
“We find that lower inflation combined with lower rates is generally associated with slightly higher valuations,” wrote Peter Oppenheimer, chief global equity strategist at Goldman, in a note dated Friday.
Markets have already factored a fall in inflation into their expectations, he noted.
“On average, since 1973, European stocks have generated real returns of 7% per year in a context of inflation of 1% to 3% and falling prices,” he continued.
Despite the slowdown in economic activity, particularly in Germany, and concerns about corporate profits over investment spending and exposure to China, Peter Oppenheimer believes that the expected valuation of the Stoxx 600 does not constitute a issue.
The index is currently trading at 12.5 times forecast earnings for the next 12 months.
For 2024, Goldman Sachs estimates that European corporate profits will increase by 7%.
The American bank, however, lowered its advice on European banks to “neutral” in anticipation of the European Central Bank (ECB) interest rate cut next year.
(Reporting Roshan Abraham in Bangalore, French version Claude Chendjou, editing by Kate Entringer)
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