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Investing.com - Stocks in the eurozone could be on track to benefit from a "goldilocks" environment highlighted by economic resilience and cooling inflation, according to analysts at JPMorgan Chase.
In a note, the analysts including Mislav Matejka argued that this would mirror the United States, where growth momentum has remained broadly intact and the resumption of Federal Reserve interest rate cuts has pushed down bond yields.
"The improving growth-policy tradeoff should be seen in eurozone next," they said, pointing to a possible "inflection" in activity from plans for stronger fiscal spending among many of the currency bloc’s members as well as early indications of a resurgence in China’s recently sputtering economy.
A downturn in the pace of price gains and lower bond yields have also been aiding consumers, they said.
The European Central Bank, meanwhile, may not be done slashing rates despite expectations that policymakers will choose to leave borrowing costs on hold in the coming months, the analysts argued.
But, "[i]f the ECB were to do further cuts next year, as inflation is credibly moving lower, and at the same time activity picks up, risk markets would see a positive tailwind," they said.
Against this backdrop, the brokerage said they have "turned bullish" on eurozone equities, "looking for an inflection higher in activity, and see more gains ahead."
They added that this "breakout higher" could see a rotation in stocks that will lead to a stalling in past market leaders like defense and banks, while French names, exporters, large-cap regional players and bond proxies are tipped to rebound.
Their top picks in Europe include companies such as Air Liquide, ASML, AstraZeneca, Danone, Orange, Rheinmetall, Societe Generale, Ryanair and UBS.