Yes, fund managers are hoping the worst is over. They still have way too optimistic earnings estimates. [/B][/QUOTE]
The best start for European stocks in at least two decades will give way to losses as slumping corporate profits send equities to new lows, the biggest securities firms say.
The Dow Jones Stoxx 600 Indexâs 7.3 percent surge in 2009 through yesterday was part of a so-called bear-market rally that will end as earnings deteriorate, according to Morgan Stanley and Merrill Lynch & Co. Profits at European companies will tumble 20 percent this year, Goldman Sachs Group Inc. says.
The Stoxx 600 rebounded 17 percent since Nov. 21 on speculation U.S. President-elect Barack Obama will revive the worldâs biggest economy with $775 billion of tax cuts and spending as the European Central Bank and the Bank of England lower interest rates to combat the biggest financial crisis since the Great Depression. Stocks gained even after data showed manufacturing and service industries in Europe are contracting at the fastest pace since data began in 1998.
âThis is a bear-market rally, it is a chance to sell rather than to buy,â said Teun Draaisma, the London-based head of European equity strategy at Morgan Stanley. âThe fundamentals are in big trouble with the economy.â
Morgan Stanley, ranked second by Europe-based investors in last yearâs Thomson Extel survey for global-equity strategy, says stock prices donât yet reflect the drop in earnings. The rally pushed the Stoxx 600âs valuation to 9.8 times the profits of its companies, compared with a ratio of 7.9 on Oct. 27.
