(Bloomberg) – Europe’s Stoxx 600 index was poised to join its U.S. and regional peers in a bear market as fears of a looming recession hammer demand for risky assets.
The index fell 1.5% at 11:05 a.m. in London, taking the total decline from a January record to more than 20%. If the gauge closes at or below this level, it will confirm a technical bear market. Energy and mining led the sell-off among the sectors today as commodities tumbled on concerns over reduced demand as global rate hikes weigh on economic growth.
The European equity benchmark is the latest major regional index to cross that threshold after Germany’s DAX and Euro Stoxx 50 closed in bearish territory in March, and the S&P 500 followed in June amid concerns over resolutely warmongering central banks. European stocks have come under particular pressure this year as they are more affected by the war in Ukraine and the worsening energy crisis compared to their US peers.
“The market is currently trying to determine the depth and duration of the recession in Europe,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “It will take a little longer and in general we expect a bottom in this bear market not before the first quarter of 2023.”
The latest data showed private sector activity in the euro zone contracted for a third month, as record inflation eroded demand and forced some businesses to limit output. Investors are also paying the most to insure high-quality European corporate bonds against default since the height of the Covid pandemic, as monetary tightening and recession fears worsen business conditions.
In the UK, the government of Liz Truss has introduced the most sweeping package of tax cuts since 1972, slashing levies on both workers’ wages and businesses in a bid to boost the potential to long term of the economy. The 5-year gilt yield was set for its biggest gain ever. The domestic-focused FTSE 250 index fell 1.4%, while the exporter-focused FTSE 100 index fell 1.5%.
Strategists at banks such as Goldman Sachs Group Inc. and Bank of America Corp. also gave up a year-end rally for European stocks, with forecasts for the Stoxx 600 down about 5% in the past month, according to the average of 16 estimates in a Bloomberg survey.
Read more: Goldman at BofA throws in the towel at year-end rally in Europe
Meanwhile, European equity funds posted a 32nd week of outflows, according to a note from Bank of America Corp. citing data from EPFR Global.
“We are facing one of the most aggressive and widespread global monetary tightening in a generation,” said James Athey, chief investment officer at Abrn. “For the stock market to fall around 20% and consider that to be pricing in macro conditions, I find incredible. future growth.”
Other strategists have warned of a hit to corporate profits as a spiraling energy crisis fuels further inflation. Sanford C. Bernstein strategist Sarah McCarthy said this month that she expects 12-month forward earnings estimates to be cut another 10-12%.
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