The European stock rally is beginning as investors have gotten optimistic about a potential ceasefire in Ukraine.
The end of the 3-years conflict was always a wild card for European equity markets. Now investors are starting to prepare for this scenario, aggressively buying energy-intensive sectors and European laggards.
While a lot of upside potential remains for some sectors, the path ahead is likely to be rapid. The benchmark Euro Stoxx 50 has rarely been this overbought in the past four years.
Some investors have been aggressively buying back their shorts on Europe, while others are diversifying out of expensive and heavily concentrated US equities. The region trades at about a 40% discount to the US and this gap has the potential to narrow. There’s also room for gains within the Stoxx Europe 600 to broaden, with just 20% of its members in overbought territory.
With the prospect of an eventual ceasefire on investors’ minds after the US and Russian leaders agreed to start negotiations, stocks geared to the reconstruction of Ukraine are in focus, like construction stocks Heidelberg Materials AG and Holcim AG as well as chemicals company BASF SE.
The strategists at Barclays Plc are overweight chemicals but are more cautious on autos, partly due to the US tariffs threat. They say construction materials have had a strong run already, while mining and steel may have more catch-up potential, along with transport and leisure.
Rebuilding Ukraine would be one of the largest construction undertakings in recent years, with total costs of nearly $500 billion, according to the World Bank. This would be highly commodity-intensive, especially for steel and cement, to restore buildings and infrastructure.
It is clearly unequivocally good news for European markets.
The EURO STOXX 50 is a stock index that represents 50 of the largest and most liquid stocks in the Eurozone. It is designed to represent blue-chip companies considered leaders in their respective sectors. The EURO STOXX 50 is one of the most liquid indices for the Eurozone.
Key facts about the EURO STOXX 50:
Technical challenge
The main 6-month graph for EURO STOXX 50 futures indicates the epic all time high (1st time over past 25 years), with a potential further upside price action.
The end of the 3-years conflict was always a wild card for European equity markets. Now investors are starting to prepare for this scenario, aggressively buying energy-intensive sectors and European laggards.
While a lot of upside potential remains for some sectors, the path ahead is likely to be rapid. The benchmark Euro Stoxx 50 has rarely been this overbought in the past four years.
Some investors have been aggressively buying back their shorts on Europe, while others are diversifying out of expensive and heavily concentrated US equities. The region trades at about a 40% discount to the US and this gap has the potential to narrow. There’s also room for gains within the Stoxx Europe 600 to broaden, with just 20% of its members in overbought territory.
With the prospect of an eventual ceasefire on investors’ minds after the US and Russian leaders agreed to start negotiations, stocks geared to the reconstruction of Ukraine are in focus, like construction stocks Heidelberg Materials AG and Holcim AG as well as chemicals company BASF SE.
The strategists at Barclays Plc are overweight chemicals but are more cautious on autos, partly due to the US tariffs threat. They say construction materials have had a strong run already, while mining and steel may have more catch-up potential, along with transport and leisure.
Rebuilding Ukraine would be one of the largest construction undertakings in recent years, with total costs of nearly $500 billion, according to the World Bank. This would be highly commodity-intensive, especially for steel and cement, to restore buildings and infrastructure.
It is clearly unequivocally good news for European markets.
The EURO STOXX 50 is a stock index that represents 50 of the largest and most liquid stocks in the Eurozone. It is designed to represent blue-chip companies considered leaders in their respective sectors. The EURO STOXX 50 is one of the most liquid indices for the Eurozone.
Key facts about the EURO STOXX 50:
- The index includes shares from various Eurozone countries, including Belgium, France, Finland, Germany, Italy, the Netherlands, and Spain.
- France and Germany contribute to over 66% of the index.
- The technology, industrial goods and services, and consumer products and services sectors account for more than 45% of the index.
- The EURO STOXX 50 was introduced on February 26, 1998. Prices were calculated retroactively to 1986, with a base value of 1000 points on December 31, 1991.
- The index captures about 60% of the free-float market capitalization of the EURO STOXX Total Market Index (TMI), which covers about 95% of the free-float market capitalization of the countries represented.
- The EURO STOXX 50 serves as a benchmark for the Eurozone's stock market performance.
- Eurex trades futures and options on the EURO STOXX 50, which are among the most liquid products in Europe and worldwide.
Technical challenge
The main 6-month graph for EURO STOXX 50 futures indicates the epic all time high (1st time over past 25 years), with a potential further upside price action.
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March 4, 2025Were you ready or not, it's gone two weeks or so since on February 24, the UN Security Council adopted United Nations Security Council Resolution 2774, sponsored by the US, which urged a lasting peace in Ukraine without a condemnation of Russia.
The European stock rally has indeed gained momentum (EURO STOXX 50 fisnished February, 2025 at the highest historically ever monthly high near 5463 points mark) as investors become increasingly optimistic about a potential ceasefire in Ukraine. This optimism is driven by several factors:
1. Peace Dividend Expectations. The prospect of peace in Ukraine is seen as a catalyst for economic growth across Europe. Investors believe that a resolution to the conflict could unlock significant economic potential, particularly in industries that have been affected by the ongoing instability.
2. Economic Stabilization. European equities have outperformed U.S. stocks significantly this year, partly due to hopes of increased defense spending and an end to the war in Ukraine. This has led to a stabilization of the European economy, with improved PMI readings indicating a recovery in manufacturing and services sectors.
3. Valuation Gap. European stocks are considered undervalued compared to their U.S. counterparts, with a forward price-to-earnings ratio significantly lower than that of American stocks. This valuation gap has attracted investors seeking better returns.
4. Monetary Policy Support. The European Central Bank is expected to maintain a supportive monetary policy, which could further boost European stocks by encouraging investment and economic growth.
Despite some cautions, investor confidence remains high, with many expecting further gains driven by fiscal stimulus and earnings upgrades. The potential for a ceasefire in Ukraine continues to be a significant factor influencing investor sentiment and market performance.
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PandorraResearch Team 😎
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.