European equities, on the other hand, appear positive in many outlook summaries. This is largely on account of three factors:

1. Through most of the Eurozone as well as the United Kingdom, overall disinflationary trends are manifesting with some strength after factoring out higher costs due to energy consumption. In fact, energy stocks are overall poised to be relatively strong performers, given that OPEC+ have been largely neutral on increasing production until at least July⁴.

2. Given the aforementioned disinflationary trends, most members of the European Central Bank signalled last week that they’re willing to perform at least one rate cut in June⁵. This would serve to provide some degree of amelioration to the loans and mortgages markets while also incentivizing capital flows back into equities.

3. The ongoing conflict flashpoints in both Ukraine as well as in the Middle East have been propelling European governments to increase focus on bolstering defence spending, with particular focus on indigenous efforts.

However, it remains a fact that, as with the U.S. equity markets, market breadth is under significant stress. In addition to defence stocks, the most significant sectors of interest are pharmaceuticals and tech – notably those with significant AI footprint.

However, while AI is likely to remain a central theme for some time to come, there are largely unresolved questions on exactly how high can AI-relevant stocks be valued at given an upper ceiling on the maximum extent of cost benefits to the users of said technology. This past Friday in particular highlights the market’s nervousness over AI’s overvaluation: after Super Micro Computer (SMCI) declined to publish preliminary Q1 results, the stock dropped 23% in a single day. Panic rapidly spread to other stocks of more seasoned high-performers: NVIDIA (NVDA) fell 10% on the same day, Advanced Micro Devices, Inc. (AMD) dropped by 5% while Arm Holdings plc (ARM) lost nearly 17%.

Along with top-line European equities, the energy and financial sector also hold significant bullish potential. However, overvaluation concerns will likely make resistance a recurring feature. All in all, Q2 is likely to be a rocky ride. Professional investors will likely find a vast number of tactical opportunities in the markets over the current quarter. Leverage Shares has a number of promising products in either direction that seasoned players across Europe are bound to find interesting: click here to browse the products currently on offer.

Footnotes:

1. « Q2 2024 Equity Market Outlook: Three charts on equity markets », UBS, 12 April 2024
2. « Q2 Stock Market Outlook: Contrarian Plays Look Increasingly Attractive », Morningstar, 29 March 2024
3. « Equities: The AI and obesity rally is defying gravity », Saxo Bank, 3 April 2024
4. « OPEC+ defers tricky decision on production increases », Financial Times, 5 March 2024
5. « Here’s what 12 European Central Bank members said about interest rates this week », CNBC, 19 April 2024