European stocks are in for a big fall — and the signs are in the economic data, UBS and BofA warn

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Both investment banks say that global factors that have held up European stocks this year are fading away.

Investment banks are bearish about European stocks because of a rapid deterioration in economic data. Strategists at UBS expect the Stoxx Europe 600 index to decline by 12.5% to 410 by the end of the year from its current level of 468. And Bank of America's strategists are forecasting an even steeper decline of 18.8% to 380 for the index by the first quarter of next year.

The stock market has been range-bound, according to him, due to the disparity between the services and manufacturing sectors in Europe. Even as manufacturing sector activity declined in the euro zone, growth in the bloc's dominant services industry kept stocks afloat. However, Fowler said, cracks have begun to show. The strategist highlighted that although first-quarter earnings reported in April were quite robust, the second quarter has shown signs of weakness.

 

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