Morgan Stanley sees a 10% fall in European stocks this summer — and reveals how to trade it

Morgan Stanley expects a 10% slump in European stocks over the next quarter as several unfavorable conditions converge. The investment bank made the forecast partly based on a slowdown in economic momentum and tighter liquidity conditions in the fixed-income market. "We expect a 10% correction over the summer months as growth slows and liquidity deteriorates," said Morgan Stanley strategists led by Graham Secker in a note to clients on June 4. The MSCI Europe Index is up 11% this year.

In addition, Morgan Stanley expects a decline in earnings per share of 6% for 2023, up from a previously projected 10% decrease, and EPS growth of 6% for 2024. LYY5-DE 1Y mountain The investment bank's strategists warned that despite the resilience of equities so far this year amid slow growth and tightening monetary policy, the environment could turn less supportive in the near term.

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