June 9 (Reuters) – Citigroup sees the Stoxx 600 gain 9% to 500 points by the middle of next year but the U.S. bank warns of falling profits that could dampen the pan-European index in the near term as economic growth slows down.
Citi’s forecast for 2024 implies a rerating in Europe with a 12-month P/E multiple at 14x, bringing it back to its long-term median.
Citi remains on its scenario of a Stoxx 600 at 445 points at the end of 2023, against 459.81 currently, adding that stocks could trade in a narrow range in the coming months.
Earnings per share for Stoxx 600 companies are likely to be “lower for longer” in Europe, given tighter credit conditions and a potential recession in the United States.
“Risks range from rising interest rates to an earnings-per-share (EPS) recession,” Citi equity strategists wrote in a note dated June 8, anticipating an EPS contraction of around 5% this year and then stagnation in 2024.
“The European stock market has a better chance of decoupling from declining earnings in late 2023-early 2024, when inflation peaks and central banks pivot (in their monetary policy cycle),” equity strategists from Citi in a memo dated June 8.
The Stoxx 600 stabilized this month after a 3% decline in May, although trading was largely limited last week by concerns over the pace of central bank monetary tightening.
Citi says growth and defensive stocks will outperform cyclical stocks in the near term as inflation remains high and economic activity falters, saying it is particularly bullish on the technology and healthcare sectors in particular. .
The bank also expects Britain’s FTSE 100 index to rise 8% over the next 12 months, bringing its target to 8,200 points from 7,594.74 currently. (Priyadarshini Basu and Amruta Khandekar in Bangalore, French version Laetitia Volga, editing by Kate Entringer)
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