We expect the first quarter of 2022 to bring new record highs for many European stocks. Through the close of 2021, cheap stocks have been in a bull market, and Goldman Sachs is confident the trend will continue until at least midway through 2022. A poll conducted by Reuters during November 2021 forecast that the German DAX and French CAC 40 blue-chip index will reach never before seen highs by halfway through next year.
No Sign Of Decline In Face Of COVID Complications
Omicron and the possibility of other COVID-19 variants aren’t expected to slow Europe’s fast-paced economic recovery. By the end of 2021, forecasts expect European corporate profits to reach roughly 50% for the year, and 2022 should easily attain between 8 and 9% growth, with most of the headway being made in the first quarter. If Bloomberg’s recent survey concerning European stocks is correct, the Stoxx 600 Index will climb by 9.3% by the end of 2022. That’s more than double the 4% average return seen over the last 20 years.
EU Stock Markets Rebounding
Across Europe, vaccination rates are high, and the Eurozone has only just begun to dispense economic stimulus from the European Union’s pandemic recovery fund. Emmanuel Cau, Head of European Equity Strategy for Barclay’s, confirms that European markets are indeed at an earlier rebound phase than the United States, and the European Central Bank is currently welcoming the expansion with open arms. UBS Chief European Economist Reinhard Cluse feels that the EU Recovery Fund will fuel growth in capital goods, utilities, telecommunications, and the automotive sector over 2022 and 2023.
All Signs Point Towards Strong First Quarter
The third quarter of 2021 brought fantastic earnings for many. Graham Secker of Morgan Stanley points out that as of the beginning of November 2021, 55% of all European and UK companies exceeded their earnings per share estimates for the year, with just 23% missing their targets. This places the third-quarter net win average at 32%, which is twice the historical average – another herald of a strong start for the first quarter of 2022.
Supply Chain Shortages Ongoing
S&P Global Ratings reminds us that the Eurozone will still suffer supply chain shortages throughout the coming year. Germany’s industrial production currently falls 10% lower than it averaged in 2019. Specific markets are particularly strained, like the automotive industry, which was 42% of its 2019 average in September 2021. However, other regions like Italy have already approached pre-COVID production levels in the last quarter of 2021, which makes us feel that the supply bottlenecks will soon ease up. According to S&P, plummeting shipping costs and a string of backlogged orders from Taiwanese manufacturers is a clear first sign that recovery is on the way.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.