European equities near record levels despite uncertainty about future rate cuts, potential for further growth

From Morningstar: 2024-06-06 20:32:00

European shares remained near record levels despite a brief dent when the ECB discussed inflation and rate cuts. Markets were uncertain about future rate cuts in 2024, despite a recent interest rate cut. President Christine Lagarde did not confirm a rate-cutting trajectory for the rest of the year.

European equities have risen nearly 9% since the beginning of the year and are trading at historical averages. Earnings estimates and P/E valuations have contributed to this rise, leading to optimism in the markets and potential for further growth amid improving economic conditions.

Sectoral performances in the European equity markets indicate that financials, telecoms, technology, and industrial stocks may benefit from future rate cuts. Analysts favor Basic Resources, Chemicals, Staples, and Residential Real Estate stocks due to their sensitivity to interest rates and economic growth.

Equity markets did not react significantly to Thursday’s rate cut, as it was symbolic rather than impactful on economic growth. The ECB’s shift towards a more normalized interest rate environment has sparked enthusiasm among investors, despite the limited immediate impact of the rate cut on the economy.



Read more at Morningstar: What ECB Rate Cuts Mean for European Equities