Is Investing in Europe Still Worth it in the Second Half of 2024? A Look at the EU50

European Stock Market Analysis: What to Expect Next?

As the second half of the year unfolds, traders and investors are evaluating their positions in the European stock market.
The Euro Stoxx 50 index has recently reached concerning levels, especially after the recent downturn following the formation of a double top pattern.
The possibility of a mass profit-taking leading to further declines is on the minds of many.
Will the European stock market continue to deliver returns to its investors, or are we on the brink of a major correction?

Looking at the Bright Side: European Stock Market Outlook

The decline in inflation over the past year has set the stage for a potential interest rate cut, which seems to have sparked a bullish sentiment in the European stock market.
This economic environment, coupled with a gradual increase in the earnings of European companies, has created a favorable landscape for the growth of European stocks.
Despite recent pullbacks, the EU50 index has seen a 12% increase year-to-date, with the market experiencing a slight contraction of nearly 3% in recent trading sessions.

While these pullbacks have led to a slight uptick in the VSTOXX volatility index and an increase in the Fear and Greed Index, they have not been significant enough to signal a definitive trend reversal.

From a fundamental standpoint, it is noteworthy that the EU50’s P/E ratio, calculated as the average of the index’s individual P/Es, is still 10% lower than the historical average.
Many analysts suggest that despite the index appearing overextended graphically, the focus should be on the companies’ balance sheets within the EU50.
Therefore, based on this analysis, despite the technical outlook appearing stretched, the European market continues to offer fundamental value.

What if Everything Comes Crashing Down?

Not everyone shares this bullish view.
Economically, the decrease in inflation and the potential need for the ECB to lower rates could signal an impending economic downturn, which might negatively impact the market multiples despite the current discounts.
Similarly, from a technical perspective, the RSI crossing below its moving average is a bearish signal that could lead to further profit-taking, especially considering the significant gains the index has provided investors in recent years.

In essence, a double top pattern may have formed, potentially paving the way for further declines, especially with the onset of the new semester in 2024.