Top Picks 2024 - S as in ‘Squeeze’ and V as Vice Versa

The long phase of rising interest rates in 2022- 2023 had a strong impact on equity valuations, with two effects: the contraction of price/earnings multiples; the "crowding out" of equity returns and the ‘squeeze’ in the equity risk premiums.

The good news is that this relationship works both ways, and this is particularly important as central banks appear to be maturing a turnaround of the restrictive monetary policies they have followed to date. The bad news is that the outlook for corporate earnings in 2024 and 2025 offers little support for a new phase of expansion in P/E multiples. We do not expect corporate earnings to accelerate in 2024, both for reasons related to the weak economic cycle and a business environment that should see flat or slightly declining sales volumes and weaker pricing power. Our GDP forecast in Italy assumes an average growth of +0.7% in 2024 (in line with 2023), held back by the effects of monetary tightening; then a gradual recovery towards the +1.2% expected in 2025.

SOURCE: Intesa Sanpaolo Research elaborations