The question of who will dominate the financial market – eurozone companies or those from the United States – remains unanswered, according to currency strategists at JPMorgan. Despite strong interest, experts caution against prematurely favoring European equity markets over American ones.
The bank warns against excessive euphoria regarding the EU stock market, even though the eurozone's SX5E index peaked in March this year. The broad-market S&P 500 index also showed strong performance, mainly propelled by seven large-cap technology stocks. However, the equal-weighted SPW index gained only 6%.
"It is probable that the divergence peaks, but that could happen through winners stalling and not through laggards rallying," JPMorgan said. According to the analysts, the SPW and SX5E highs coincide with the onset of deteriorating economic growth and political conditions.
Although economic activity has moderated slightly, market expectations for higher Fed rates have increased since March. JPMorgan anticipates that the challenging economic and political environment may persist for an extended period.
Experts at JPMorgan suggest that potential interest rate cuts by the Federal Reserve, which are expected to commence in September, are likely to reflect a softer labor market rather than just easing inflation. This shift from preemptive to reactive rate cuts could slow the regulator's response to economic changes, the bank noted.
In addition, a slowdown in economic growth could impact corporate earnings in the second half of 2024. In the third and fourth quarters, JPMorgan forecasts strong annual earnings per share growth (13%-15%).
The bank's management favors investing in growing economic sectors, while maintaining a positive outlook on defensive sectors, particularly utilities and real estate. Although JPMorgan sees potential in the euro area, it believes that it is too premature to prefer eurozone equities over US equities. Experts foresee a favorable scenario for European markets in the second half of the year, provided that factors such as political stability in France and the absence of negative effects on the part of the US economy and the dollar align.
