(Reuters) - Goldman Sachs (NYSE:GS) on Tuesday said it expects European equities to end at 480 points next year, a 7.5% upside from current levels, supported by an improving economic backdrop, reasonable valuations and a "roughly flat" outlook for long-term bond yields.
Europe's commodities- and luxury-heavy STOXX 600 index is up 5% so far this year, closing at 446.62 points on Monday. At Goldman's forecast, the index would be at its highest since January 2022.
Profit for companies on the index is likely to grow by 7% next year, aided by "good" economic growth and strong oil prices, GS strategists, led by Sharon Bell, said.
It expects the euro area's annual GDP to grow by 0.9% in 2024, compared to expectations of a 0.5% rise in growth this year.
Net income margins for European companies could "slightly" contract in 2024 as wage growth remains elevated, Goldman said.
It added that it does not expect a recession in the region as it sees the European Central Bank delivering interest rate cuts in a disinflationary environment.
Buybacks are likely to continue, Goldman said, and M&A will pick up, thanks to high cash balances and low debt ratios among companies.
The brokerage upgraded the consumer products and services sector to "neutral" from "underweight" on anticipation that luxury stocks will likely remain supported by further stimulus measures in China.
Retail and technology sectors also stand to benefit from falling inflation and sticky wages, it said.