US Stock Dominance Expected Through 2025
According to Barclays strategists, the dominance of US stocks is likely to continue until 2025, largely due to the widening gap between US and European equities since Donald Trump's election victory.
Factors Boosting US Stocks
Emmanuel Cau and his team attribute the resurgence of enthusiasm for US equities to "MAGA" policy expectations and favorable economic data, leading to a sustained sense of optimism. They state, "It is hard to see an end to US exceptionalism any time soon, which we think remains the playbook into 2025."
Challenges Facing Europe
In contrast, Europe is grappling with stagnant growth, threats from tariffs, and political instability, particularly in France. While the US stock market has thrived, buoyed by cyclicals and value sectors, European equities have struggled in the wake of Trump’s policies.
Outlook for Global Growth
Barclays maintains a positive outlook for global growth, especially in the US, forecasting a moderate slowdown to approximately 3% by 2025. They anticipate that rate cuts, coupled with a solid labor market and disinflation, will improve consumer spending. Although they expect Trump’s policies to be less extreme than proposed, they warn that these could lead to lower growth and higher inflation in the future.
European Growth Projections
For Europe, growth is expected to stagnate at around 0.7% amid trade and political uncertainties. However, potential ECB rate cuts and a weaker euro could offer some respite. Barclays also predicts a slowdown in China's growth to 4% due to trade challenges and weak domestic demand, though they suggest that additional stimulus might be implemented in response to US policies.
Earnings Expectations
Despite negative earnings revisions and skepticism surrounding high growth forecasts for 2025, Barclays believes modest economic surprises in Europe could contain downgrades. They forecast 4% earnings growth for European stocks, below industry estimates of 8%. Additionally, there is potential for mid-single-digit earnings growth in Europe, assuming real GDP growth stays near trend levels and inflation remains stable.
Market Valuation
Despite significant gains in US equities over the past years, European markets are considered undervalued, trading below average multiples. The strategists conclude that geopolitical uncertainties may keep EU equities at a high risk premium, but there is potential for more modest revaluation if the economic cycle extends and political risks diminish.
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