The last shall be the first. EuroStoxx 50 was lagging behind the S&P 500 in 2020. But the markets grow on the expectations. If most positive factors have already been priced in the American companies’ stocks, the European stocks are just beginning to go up. Let us discuss the market outlook and make up a trading plan.
Yearly EuroStoxx 5 fundamental forecast
Slow and steady wins. Many of us want to go to the past to buy assets whose value has increased by tens or even hundreds per cent. Although the euro-area economy is recovering slower than the US, the European equity market could outperform its competitors in 2021, allowing investors to travel to the past. Like the S&P 500 and other US stock indexes were skyrocketing in 2020, the EuroStoxx 50 could soar this year.
In 2020, the tech stocks performed the best due to the pandemic and the associated social isolation. In 2021, the situation has radically changed. People are hungry for restaurants and travel, and huge savings and the bond yields rally will support the banking. Consequently, the Dow Jones Index performs better than the Nasdaq Composite. Nowadays, the most significant demand is for value and cyclical stocks, whose high proportion in EuroStoxx 50 allows JP Morgan Chase and Amundi to claim that the European equity market will outperform the US one in 2021.
The Central European Blue Chip Index primarily comprises the securities issued by French and German companies and banks’ shares. Besides, the ECB measures aimed at curbing the growth of European bond yields and effective fiscal policy suggest the EuroStoxx 50 rally should continue. The stock index has grown by 11.7% since the beginning of the year, compared to 6.4% growth on the FTSE-100, 8.3% rise on the Nikkei 225, 8.5% - on the S&P 500, and 11% - on the DAX.
Dynamics of EuroStoxx 50 and DAX
Source: Trading Economics
According to the IFM forecasts, the euro-area GDP will grow by 4.4% in 2021, while the US GDP will be 6.4% up. However, most of the financial aid in Europe will be released this year, while a substantial part of the US stimulus has already been worked out. Moreover, the EU governments are not going to raise corporate taxes. According to Pierre Wunsch, a member of the ECB Governing Council and Governor of the National Bank of Belgium, there are automatic stabilizers in Europe, missing in the United States, making the EU fiscal policy more effective.
The European Central Bank will continue its € 1.85-trillion emergency bond-buying program until at least the end of March 2022 and will start raising interest rates later than the Fed. Besides, the growth of corporate profits for companies related to tourism, restaurant business, and banking will allow EuroStoxx 50 to continue growing.
Yearly EuroStoxx 50 trading plan
With more than 44% of exports in the GDB, the euro area has a more export-led economy than the USA, where the exports account for 20% of the GDP. An increase in the global trade and growing US imports will support the euro-area economy. Therefore EuroStoxx 50 should be souring in 2021, just as the S&P 500 did in 2020. Slow and steady wins. I recommend buying the EuroStoxx 50 on the corrections, betting on the price growth to 4180 and 4520 in six and twelve months.
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