Will 2025 be any different? Is this the year of PSG? asks David Kruk, Head of the Trading Desk at LFDE, in his monthly update. PSG has never won the Champions League, and Europe has rarely topped the league tables for stock market performance on 31 December. will 2025 be an exceptional year? At the end of March, both were still possible, according to David Kruk, a privileged witness and keen observer of the markets and how they evolve.
Over the past month, while European markets have held up well, the market favoured by many investors has suffered. Wall Street is shaken by fears of a contraction in US GDP linked to the trade war. One after the other, the US banks have lowered the profit growth forecasts for companies in the S&P 500, recalculating them at 9% compared with double figures at the start of the year. On1 January, the probability of a recession was estimated at virtually 0%. A rare unanimity,” says David Kruk. “But you always have to be wary of too broad a consensus,” adds Pierre Puybasset, a seasoned spokesman for management at LFDE.
Europe, on the other hand, is benefiting from an improved outlook for growth. Confirmation of this upturn on the Old Continent can be found at German business sentiment rose in March, according to a survey by the Ifo institute published on 24 March, buoyed by hopes of an economic recovery after two years of contraction. It’s hard to imagine, almost unheard of, but at the same time, growth is being revised downwards across the Atlantic and upwards in Europe.
A welcome break in New York
After several trying sessions, the broad US market index, the S&P 500, entered a ‘correction’ phase (down more than 10% from its last peak). What can we say about the Magnificent Seven (Apple, Alphabet, Amazon, Tesla, Nvidia, Meta, Microsoft), which have doubled their stakes, with a 20% fall to their lowest level since the start of the year.
Reflecting a certain disarray across the Atlantic, and faced with an unpredictable President, the word stagflation has even escaped from the hat of some pessimistic bankers. But they all agree on a downward revision of growth and a rise in inflation to at least 2025. The monthly job creation figures will be a barometer, a key element in the coming months, according to David Kruk. “A figure of less than 100,000 could cause concern at the Fed and trigger an accelerated rate cut. This reaction could come as early as June”. Fed boss Powell has clearly adopted a more accommodating tone. After having been an observer since the election, in his latest speech he hinted at the beginning of concerns about growth, with the FED’s estimates revised downwards… until 2027. The Federal Reserve has become more concerned about growth than inflation and may act in panic mode. “If this growth continues to erode, the FED could come under pressure and fall into disquiet in June/July. It could act in panic in the face of a deteriorating economy”, says David Kruk.
S&P 500 or eurostoxx
Meanwhile, the experts at Citi have also lowered their recommendation for US equities. They are no longer urging their clients to overweight them, and have taken their view of Chinese equities up a notch.
At the start of the year, flows were directed towards defensive markets such as China and Europe, in a pendulum swing that moderated the overweighting of the United States. An interesting statistic quoted by David Kruk is that for every hundred dollars taken out of European markets since 2022, only seven have returned to those same markets. This figure is sufficient to create outperformance at the start of the year.
At present, brokers are divided. Many of them are anticipating a rebound in the US market, such as Morgan Stanley, which adds that a weaker dollar (the dollar has lost around 7% against the euro since the start of the year) should cushion the downturn in earnings (import of foreign earnings reflected in a weaker dollar and favourable support for exports). For Goldman Sachs, the economy is doomed to slow down.
The feeling is so dark on the magnificent seven that it’s almost hard to turn it down much further. In a positive sign, US retail investors remained solid in the downturn and continued to buy US equities. But what about the effect of falling markets on his assets? There is fear on the part of the American consumer, and consumption accounts for over 66% of GDP,” says David Kruk.
UBS wants to remain focused on Europe, where valuations remain attractive. With a price/earnings ratio of 14, the Swiss bank is not ruling out an expansion of multiples to 16, a premium justified by an improving economic situation and good news yet to come. This is not entirely the view of Goldman Sachs, which believes on the contrary that much of the good news has already been incorporated into European stock prices.
Should we position ourselves on a rebound in the USA and continued good health on the European markets? David Kruk is considering both and confides his confidence in the American private investor, who has continued to buy his market during the downturn.
In April, don’t be afraid, as the saying goes. But after a particularly cold March for the US indices, the world’s stock markets can take a breather. This slight parallel rebound on both sides of the Atlantic is estimated by David Kruk at 2 to 3%. The markets also seem to agree that Donald Trump could be putting a little water in his (French?) wine in his policy of tariffs. To be continued..
