Europe – Not Enough Growth
Forecasts for European corporate earnings have become increasingly pessimistic. Analysts have reduced calendar year 2016 expectations to just under 3% earnings per share (EPS) growth currently, from nearly 20% as of the end of September 2015. Even though European stock prices have declined, the collapse in growth expectations suggests that these markets are still fairly valued; few, if any, bargains have been created. Recent aggressive monetary policy by the European Central Bank (ECB) may have boosted stock prices, but the implications for corporate earnings are much less certain. At just over 15 on a forward basis, the price-to-earnings ratio (PE) is well above the average since 2004 of 12.8 and does not present a great opportunity given the uncertainty around 2016 earnings expectations.