Goldman Sachs raised its prediction for Europe’s STOXX 600 index to 540 from 510 by the end of 2024, expecting an improvement in economic growth and monetary policy easing across central banks. This new target indicates a potential 6% increase from Friday’s close of 509.64 for the pan-European benchmark index.
Goldman Sachs Portfolio Strategist, Lilia Peytavin, stated that if there is a modest acceleration in economic growth and central banks begin a rate-cutting cycle in June (as expected by Goldman Sachs economists), valuations will rise. The US Federal Reserve and the European Central Bank have hinted at rate cuts in June.
Recent data showed that euro zone business activity was close to returning to growth in March and the US business activity remains steady.
Goldman Sachs also predicted that the STOXX 600’s valuation could increase by 2.5% this year. However, Peytavin added that equities have probably reached the optimism phase, which is the last phase of the equity cycle where multiples tend to rise while profit growth slows.
The brokerage firm argued that in the last six months, European equities have increased by 12%, and this rally has been driven by an improvement in valuations rather than earnings growth.
The STOXX 600 currently trades at about 15 times its one-year forward price-to-earnings (PE) ratio, while the S&P 500 index trades at 26 times its one-year forward PE ratio, according to LSEG data. A lower PE multiple indicates a more attractive investment opportunity.
Goldman Sachs warned that increasing oil prices could pose a two-sided risk to its forecasts. While the prices could push back the timing of interest rate cuts, they also provide an ‘upside risk’ to earnings-per-share growth.
STOXX 600 Long (Buy)
Enter At: 510.65
T.P_1: 514.86
T.P_2: 519.13
T.P_3: 525.07
T.P_4: 530.04
T.P_5: 535.83
T.P_6: 540
S.L: 496.08
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