Can The Stoxx Europe 600 Continue Its Rally?

After hitting a record closing high on Monday the pan-European Stoxx Europe 600 lost 0.7% on Tuesday to profit taking. The index is up 22.9% in 2019, which is its third best performance over the past two decades. Only 2009 and 1999 have seen better gains. It seems 9 is a lucky number for European equities.

Naturally the market’s performance in 2020 is anyone’s guess, but there are definitely headwinds forming that make it look as if the benchmark European equity index could struggle to repeat this year’s performance.

The first concern comes from corporate earnings. Analysts have been very aggressive in cutting earnings estimates and downgrading stocks. And yet many strategists claim 2020 earnings estimates remain too high, which could be setting the index up for a string of disappointing earnings in the coming quarters.

Economic growth in Europe in 2020 also remains a huge question mark. Manufacturing continues to struggle, and just last week the European Central Bank revised lower its projections for next year’s economic growth.

Monday’s economic data has confirmed that the worst may yet be coming. Employment growth remains at a five year low for the bloc, and PMI data indicates output will be at its lowest since the second half of 2013, when the region exited a double-dip recession.

The U.K. might also be facing problems. Markets were ebullient on Monday following the results of the Parliamentary elections, but trouble could be brewing as Tuesday saw indications that Prime Minister Boris Johnson might steer the country to a hard Brexit after all.