The liquidity-driven rally in the European stock markets looks overstretched.
The Stoxx 600, a stock index of European stocks introduced in 1998, rose to its highest valuation in more than a decade during the second week of June, according to Bloomberg.
“Investors may now wait a while for either the stock markets to decline or for earnings estimates to be revised upward,” tweeted popular macro analyst Holger Zschaepitz.
The Stoxx 600 clocked a three-month high of 376.7 on June 8. At that level, the index was up 41% from the low of 267 observed on March 16. The remarkable recovery could be associated with the unprecedented liquidity injections by the European Central Bank, Federal Reserve, and other major central banks and expectations for a V-shaped economic recovery.
Stock markets, however, got a reality check last week from the Fed, which said the recovery could take years. Also, the number of coronavirus cases began rising in the US and other parts of the world, stoking fears of the second wave.
With stocks looking overvalued, the JPY bears could remain on the sidelines for some time.
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