(Bloomberg) -- European stocks hovered near record highs amid optimism about earnings growth and potential interest-rate cuts.

The Stoxx Europe 600 was up 0.2% by the close, after hitting an all-time high last week. Basic resources stocks outperformed as gold and copper prices hit record levels. 

Industrial goods and technology stocks also gained, while automotive shares were among the laggards as Morgan Stanley analysts turned cautious on the industry.

Regional equities have jumped this month after slipping in April. A better-than-feared earnings season and expectations that the European Central Bank could cut rates before its US counterpart are key drivers of the rally. The Stoxx 600 is among a group of global benchmarks that are near record levels, with few obstacles in sight.

Morgan Stanley strategists led by Marina Zavolock hiked their MSCI Europe Local Index target to 2,500, implying 18% gains from current levels over the next 12 months. The region’s equities are in a “sweet spot,” supported by an emerging earnings recovery and continued re-rating.

“We see improving macro indicators, rising corporate confidence, rebounding M&A, attractive capital distributions, and underappreciated AI diffusion,” the strategists wrote in a note.

Liberum strategist Susana Cruz said there’s potential for further gains, particularly for cyclical sectors that benefit from rising economic growth and rate cuts. “We think EPS estimates could be upgraded, given the relative resilience that we saw in companies’ earnings this season,” she said.

For more on equity markets:

  • Strategists See Best of 2024 in Rearview Mirror: Taking Stock
  • M&A Watch Europe: Keywords Studios, Sabadell, BBVA, Anglo, BHP
  • US Stock Futures Little Changed

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--With assistance from Jan-Patrick Barnert and Sagarika Jaisinghani.

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