European Stocks Dip at End of Holiday-Shortened Week

European stock markets traded lower on Monday, December 31, 2024, as investors returned from the Christmas holiday. The Stoxx Europe 600 index fell 0.7%, capping off a holiday-shortened week with bourses across the region notching up gains. The decline was driven by a mix of geopolitical tensions, sluggish Chinese spending, and a lacklustre domestic economic outlook.



The Irish index of shares closed the week marginally lower, falling 0.11 per cent to finish at 9700. Among the decliners on the day were Bank of Ireland and Permanent TSB, with the latter falling by 1.4 per cent and BOI down just under 1 per cent over the session. AIB outperformed its peers, rising 0.7 per cent. Volumes were lower on stocks due to the holiday period.

London's benchmark FTSE 100 inched higher on Friday, December 27, 2024, as gains in energy stocks were capped by losses in miners. The blue-chip FTSE 100 was up 0.2 per cent, for a 0.7 per cent weekly gain, its best in five weeks. The midcap FTSE 250 was down 0.4 per cent, but clocked a weekly gain of 0.6 per cent, for the first time in three weeks.

Beverages led sectoral gains with a 1.4 per cent rise while the energy sector rose 0.7 per cent as oil prices nudged up on expectations of a stimulus-driven recovery in the world's biggest oil importer, China. Retailers led sector losses and slid 1.5 per cent. Precious and industrial metal miners fell 0.8 per cent and 0.5 per cent respectively, as gold prices eased and copper remained steady.

The pan-European STOXX 600 index clocked its first weekly advance in three on Friday, December 27, 2024, closing 0.7 per cent up, hitting its highest level in a week and gaining about 1 per cent in a week where trading volumes were below average and several markets were shut throughout the period. Most bourses across the region also closed up, with Germany's DAX rising 0.7 per cent, France's CAC 40 adding 1 per cent.



The word recession remains on everyone's lips. Are we in one, will one come, and if so, how severe will it be? Global GDP (gross domestic product) growth figures for 2024 will settle at over 2.5 per cent, driven by the US and some emerging markets. Developed markets show a more positive picture than expected, with Europe certainly growing but being slowed down by Germany. And China was able to make a positive contribution to global growth in 2024, albeit with weaker momentum than originally hoped.

The consensus for 2025 sees things changing - Europe will be stronger and the US weaker. But is the consensus correct? While the base effect speaks for Europe and against the US, employment figures in both show a different picture. In addition, elections in the US and the UK will also shape macro developments and cause uncertainty in the lead up to year end.

Japan will also continue to deliver positive growth, while China will continue to find its own way out of the crisis, taking whatever measures it deems necessary to stabilize its economy. Falling interest rates should provide additional growth potential for emerging markets. This could, in turn, help European companies, especially industrial stocks.

A positive picture for earnings and valuations
2024 was difficult but successful for most companies; while earnings have increased overall, certain sectors have seen valuations increase particularly significantly. As the charts shows, the parts of the market dominated by the big US seven are expensive. When including these stocks, valuations seem high; without them, the picture is somewhat different. Indeed, the most attractive markets are Europe and the UK. Overall, companies were able to generate quite robust results in 2024, despite the many uncertainties.

What can we expect for 2025? Companies are communicating cautiously, and the many unanswered questions are contributing to uncertainty. Inflation, interest rates, and geopolitics all make it difficult to formulate an accurate forecast. Using analysts’ estimates as the best guide, companies in Europe will earn 6% more next year than in 2024. In addition, small caps in Europe and the UK remain very interesting in terms of valuation.

Of course, earnings estimates should be treated with caution, as they are subject to change and may not always reflect the true performance of a company. However, they can provide a useful starting point for investors looking to make informed decisions about which stocks to buy or sell.

In conclusion, the European stock market experienced a dip at the end of the holiday-shortened week, driven by a mix of geopolitical tensions, sluggish Chinese spending, and a lacklustre domestic economic outlook. Despite this, the overall performance of the market in 2024 was positive, with companies generating robust results and valuations remaining attractive. As we look ahead to 2025, investors should remain cautious and keep an eye on the many uncertainties that could impact the market. By staying informed and making well-researched decisions, investors can position themselves to take advantage of the opportunities that the European stock market has to offer.