BofA Turns Bearish on European Stocks, Sees 10% Drop by Year-End

(Bloomberg) -- Bank of America Corp. strategists have turned bearish on European equities, saying they expect the benchmark Stoxx 600 Index to slump 10% by year-end as economic growth slows and inflation remains elevated.

The macro backdrop is now shifting from a Goldilocks scenario -- low inflation, optimal growth -- to an “anti-Goldilocks” outlook, strategists led by Sebastian Raedler said in a note, cutting the region’s equities to negative from neutral. They expect industries to suffer further from energy shortages, risks in the China property sector and lingering supply chain constraints.

The call on Friday came a few hours after data showed that manufacturers are increasingly strained by global supply-chain problems that are pushing up prices and may last well into next year. The Stoxx Europe 600 Index is down about 5% from its August record high as rising bond yields, tapering fears and China risks weighed on appetite.

“The ongoing supply-chain disruptions and the spike in energy prices are set to keep inflation elevated,” said Raedler and his colleagues. They turned underweight on autos, capital goods and financials.

The European Union’s statistical agency said in a preliminary estimate on Friday that inflation in the euro area surged to a 13-year high last month.

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