Goldman Sachs Says Investors Skeptical on European Stock Rally

Core Viewpoint - Global investors are skeptical about a European equity rally, awaiting Germany's commitment to significant fiscal reforms [1][2] Group 1: Investor Sentiment - Investors are concerned that Europe is lagging behind other regions, particularly the US and China, in terms of economic momentum [2] - A recent survey indicated a decline in allocation to European equities, although fund managers do not expect declines exceeding 5% [4] - Despite skepticism regarding Germany's spending plans, these proposals provide a fiscal anchor, alleviating fears of extreme downside scenarios for the region [4] Group 2: Market Performance - The Stoxx 600 Index had previously outperformed US indices in dollar terms during the first quarter, driven by Germany's pledge of hundreds of billions of euros for defense and infrastructure [2] - Recently, the Stoxx 600 has lost its lead as investors return to US assets, with the S&P 500 rising 12% to a record this year, while the Stoxx 600 is up 8.6% but below its March peak [3] Group 3: Germany's Fiscal Plans - Germany plans to spend hundreds of billions of euros on modernizing infrastructure and defense, which is expected to boost economic output [5] - There are concerns about the timing of these investments translating into company profits, with some critics suggesting that funds may replace state budgets rather than stimulate new investments [5] Group 4: Interest Rate Outlook - There is a prevailing sentiment among clients that the likelihood of negative interest rates in Europe over the next decade is very low, which is seen as positive for banks [6] - While fiscal support is recognized, investors remain hesitant to invest based on overly optimistic scenarios [6]