Bank of America (BofA) has reaffirmed its bearish outlook on European equities, advising clients to remain underweight the region as economic data continues to disappoint. In a note published this week, the bank's strategists argued that the combination of sluggish growth, persistent inflation, and geopolitical risks leaves little room for a sustained rally in European stock markets.
The FTSE 100, which has a significant weighting in international and European-facing companies, slipped 0.4% in early trading on Monday, mirroring a broader downturn across European indices. Germany's DAX fell 0.6%, while France's CAC 40 dropped 0.5%, as investor sentiment soured. BofA specifically highlighted weak earnings revisions in sectors such as industrials and consumer discretionary, which have dragged down overall market momentum.
For UK investors, the implications are tangible. Many pension funds and ISAs hold substantial European equity allocations, and a prolonged downturn could suppress returns. Analysts at BofA noted that the European Central Bank's cautious stance on interest rates, coupled with uncertainty over energy supplies and trade tensions with China, creates a 'low visibility' environment that favours defensive positioning.
Sector-wise, energy and healthcare have shown relative resilience, but BofA cautioned against chasing cyclical stocks. 'We see limited catalysts for a near-term rebound in European equities,' the note stated. 'Valuations are not cheap enough to offset the macro risks.' The bank's view contrasts with more optimistic calls from some rivals, who argue that falling inflation could pave the way for rate cuts later this year.
The bearish sentiment adds to the cautious tone already prevailing in London, where the FTSE 100 has struggled to hold above 8,200 points. With the UK general election now behind it, the market is refocusing on corporate earnings and global trade dynamics. BofA's stance suggests that European equities may remain under pressure for the foreseeable future, urging investors to prioritise quality and income over growth.