BCA Research advises investors to rotate from U.S. equities into European stocks, particularly defensive sectors. The firm cites doubts over AI spending and the prospect of lower energy prices. It stops short of an outright bullish call on equities.
BCA Research recommends shifting exposure from U.S. equities into European stocks as doubts grow over the artificial intelligence investment boom. The firm believes Europe can outperform Wall Street even if both markets decline.
AI spending doubts weigh on U.S. stocks
In a November 6 research note, BCA chief strategist Jeremie Peloso said concerns about the sustainability of AI capital expenditure were becoming increasingly difficult for investors to ignore. The Nasdaq's 6.4% plunge on Thursday underscored that uncertainty.
However, BCA does not expect an immediate collapse in the AI boom. It says recurring concerns over regulation, building permits and returns on investment warrant a more cautious approach to U.S. equities.
Energy prices and the ECB
European markets have struggled this year with elevated energy costs and competition from the U.S. technology sector. Even so, European equities have broadly held their ground against U.S. stocks in local currency terms, despite geopolitical tensions surrounding Iran.
Lower oil and natural gas prices could help further. BCA said they would ease pressure on European household purchasing power and corporate profit margins. The firm's geopolitical analysts assign a 30% probability to renewed escalation in the Iran conflict over the coming months, but its broader outlook points to gradual energy-price normalization through the first half of 2027.
Cheaper energy could also ease inflation pressures across the eurozone. BCA noted that markets were pricing in roughly 50 basis points of ECB rate increases in 2027, and falling energy prices could challenge those expectations. The U.S. Federal Reserve, meanwhile, could face more persistent inflation pressures given stronger domestic economic activity.
Defensive sectors offer a valuation gap
BCA also highlighted that many European defensive sectors trade at substantial discounts to comparable U.S. stocks. It recommends investors favour defensive shares as they rotate toward Europe.
The firm cautioned against reading its preference as an outright bullish call on stocks. Its bearish outlook for the eurozone economy heading into 2027 supports an overall underweight position in equities relative to government bonds.
Source: Investing.com
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