Morgan Stanley sees a tactical pause in European equities, warning sentiment is stretched and expecting choppy trading, while favouring stock picking with energy, banks and utilities outperforming.
Morgan Stanley sees a tactical pause in European equities, warning sentiment is stretched and expecting choppy trading, while favouring stock picking with energy, banks and utilities outperforming. Summary: Morgan Stanley flags tactical pause in European equities Near-term choppiness expected during earnings season Sentiment seen as stretched after recent rally Optimism on Hormuz risks may be overdone Earnings dispersion supports stock picking Energy, banks, utilities seen as outperformers Luxury, autos, staples face higher miss risk Morgan Stanley is flagging a near-term slowdown in the rally across European equities, warning that markets may struggle to maintain recent momentum as earnings season unfolds.
While the broader outlook remains constructive over the medium term, analysts expects a period of volatility at the index level, with sentiment having run ahead of fundamentals. In her view, investor positioning has become stretched, increasing the likelihood of a tactical pause rather than a continuation of the recent upswing. A key driver behind this shift is the market’s increasingly optimistic stance on geopolitical risks, particularly expectations around a resolution to disruptions in the Strait of Hormuz.
Morgan Stanley suggests that investors have already priced in a relatively benign outcome, leaving markets vulnerable if reality falls short of those assumptions. That said, the environment may become more favourable beneath the surface. Rather than broad index gains, Morgan Stanley sees a transition toward stock-specific performance as the dominant theme through earnings season.