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Four Outlooks for Europe
JAN 28 2019
The outlook for European stocks appears more mixed than a year ago -- with similar potential for both very good and very bad outcomes based on the macro environment.
In the past few years, our outlook has generally been constructive towards European equities. In 2019, we have a more balanced view, as this year is likely to be either very good or very bad depending on how the macro environment develops. The year may be the proverbial game of two halves, with the first six months being highly uncertain and volatile as the market sentiment swings around depending on incremental data. If the market materially corrects, this could present a great opportunity for the second half.
Here are our range of likely outcomes for European equities this year.
Eventually the Fed cuts interest rates and stops reducing its balance sheet. Should this happen, we would favor a low, or short, net exposure until the credit and macro indicators stabilise. Positive returns will only be generated from short positions where the focus would be companies with high operational and financial leverage. As the huge majority of share prices fall and de-rate, the long positions will aim to outperform the index.