European equities to avoid a substantil drop this winter to rise again in 2023 – SocGen

Economists at Société Générale expect European equities to struggle this winter. However, they have better prospects for the next year and forecast STOXX 600 and EuroSTOXX 50 at 440 and 3,800, respectively.

Inflation should decelerate next year, allowing a rerating of European equities 

“This winter could be volatile and choppy for the European equity market, as investors weight up the impact of higher energy prices and the risk of gas shortages and power cuts on the continent.”

“During the next two quarters, lower GDP growth should not prevent the ECB from continuing to hike. As this story is already partly priced into European equity markets and we assume a worst-case scenario could be avoided, the downside should be rather limited (single digits).”

“In our scenario, inflation should decelerate next year, helping the German 10y bond yield to stabilise from spring onwards to around 1.6% and thus allowing a rerating of the European equity market.”

“We see the STOXX 600 Index rising to 440 points (6% higher than current levels) and the EuroSTOXX 50 to 3,800 points (+7% vs the current level) by year-end 2023.”