If a peak in fears about the coronavirus was a condition for the market to commence its recovery, then the good news is that we might just have passed that point, according to Barclays Plc strategists.
The Covid-19 outbreak seems to be slowing, and that’s “the only thing that matters for now,” head strategist Emmanuel Cau wrote in a note on Wednesday. Additionally, the unprecedented response from governments and central banks is reducing downside risks and could hasten the recovery, he said.
The Stoxx Europe 600 has bounced about 16% since March 18, but remains 25% below its Feb. 19 all-time high. With the epicenter of the pandemic now switching to the U.S., European stocks could well outperform their U.S. peers over the next year, according to Barclays. Cau sees the European benchmark advancing to 365 points by year-end, suggesting 13% upside.
“We continue to believe equities offer an attractive risk-reward on a six to 12 month horizon and will end the year higher,” Cau said. He retained a balanced allocation between cyclicals and defensives, with a quality bias, because further economic pain is still on the cards.
While expecting that the recession will be deeper than in 2008-2009, but also shorter, the strategist warned that the pandemic will have long-lasting effects on society, the economy and financial markets.
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