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(Reuters) – LONDON, July 14 (Reuters) – In the second quarter of 2021, European corporate earnings are predicted to have more than doubled, but many investors are concerned that turbulence will follow as the realization sets in that Europe Inc has likely achieved its peak momentum. The euro zone’s economic growth advanced at its strongest rate in 15 years in June, and all signs point to a strong recovery from last year’s COVID-19-induced lockdowns. find out more The European Commission recently upped its prediction for euro area economic growth to 4.8 percent this year, up from 4.3 percent in May. find out more According to Refinitiv I/B/E/S statistics, profits of the 600 largest listed European corporations increased by 110 percent year over year in the April to June quarter. Since late April, when the rise was predicted to reach slightly under 90%, expectations for the second quarter have been consistently revised upwards. The rest of the year will see lower growth rates, with 33.6 percent and 28.3 percent profit growth expected in the last two quarters of 2021. “I believe 2Q21 earnings growth will be the high point of the current recovery cycle,” said Christian Stocker, an equities strategist at UniCredit Bank. Stocker expects profits to increase by about 10% next year, but noted that similar periods of deceleration in previous cycles have tended to increase stock market volatility, implying that there is “an increasing risk of some setback during the summer.” Investors should select defensive assets like healthcare and consumer staples to weather such summer storms, he suggested. European stock exchanges, like those on Wall Street, are hovering around all-time highs, but a resurgence in COVID-19 infections could easily knock them down again. The STOXX 600 index, at around 460 points, is already 10 points higher than the consensus target set by a Reuters survey of fund managers and analysts in May. find out more The pan-European benchmark, however, appears to have switched into a lower gear after rising more than 15% since the beginning of 2021. “The dynamic through the markets is now more cautious,” said Emmanuel Cau, head of European equities strategy at Barclays. “‘Peak growth’ has already been factored in, and investors are thus less bullish than they were.” “Better results this quarter would justify the performance of markets in some ways, but they would not necessarily lift them much farther,” he added. “Cyclical stocks will have a less bullish second half of the year,” Cau forecasts. According to a study of fund managers done by BofA in July, 82 percent of respondents expect European equities to have a single-digit percentage year-end upside. However, “47 percent of respondents identified lowering equities exposure too early as the largest danger for their portfolio,” indicating that FOMO (fear of missing out) remained significant. Julien Ponthus contributed reporting, and Hugh Lawson edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

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