Jun. 19 at 8:09 PM
Bank of America warns that Europe’s stock rally may be losing steam after its strongest momentum-driven run in over two decades. High-momentum stocks have significantly outperformed, fueled by AI investment and resilient economic growth, creating a sharply divided market where defensive sectors have lagged.
BofA argues that valuations and earnings expectations for winners such as semiconductors, industrials, miners, and banks have become increasingly difficult to justify. The bank favors a rotation into defensive sectors including consumer staples, pharmaceuticals, and software, while remaining underweight semiconductors, capital goods, mining, and banking stocks.
The firm also cautions that the market may be overly optimistic about AI-related spending, noting growing customer resistance to rising AI costs and the increasing adoption of cheaper open-source models. BofA expects the STOXX 600 to decline to 560 by the end of Q3 before recovering to 590 by year-end.
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