They raise the bar and expect more to come. That’s what Merrill Lynch’s strategists just did.
Considering that European earnings are « synchronized » with the upturn underway in the global economy (a rather bullish statement despite the obvious gap between « hard » and « soft » data), they raised their SXXP target to 420 by year-end 2017, which represents a 8% upside potential.
EPS are now expected to grow 15% this year (from previous view of +11%) while consensus is +14.5%. P/E is expected to remain stable at 15x.
ML’s strategists reflect a broader relief sentiment after the 1st round of French presidential.
Yet the market reaction was probably a bit exaggerated, especially since the market were not in panic mode before the vote.
We still have to wait for the 2nd round to confirm Macron’s election. We also will have to see if once elected he will be able to draw a majority from the French Parliament, which at this point seems far from a given.
There are other reasons for caution. This week we learned that the US economy has not translated into real number the burst of optimism after Trump’s election.
Real GPD growth was 0.7% from previous quarter, nothing to brag about as the WSJ rightly underlined.
Of course if European earnings were to gain a sustainable positive momentum going forward, that would probably give the much awaited leg to the European stock market rally so many investors have been waiting for.