(Bloomberg) -- Forget making money on European equities this year.

The Stoxx Europe 600 Index will end December at 476 index points, down 2.5% for the year, according to the average of 15 forecasts in Bloomberg’s monthly survey. While that implies about 8% upside from Tuesday’s close, strategists have lowered their estimates by 5 index points in the past month.

“The macro backdrop remains extremely uncertain and at the mercy of energy markets,” said UBS Group AG strategist Sutanya Chedda, who has a year-end target of 480 for the Stoxx 600. “Clearly, higher energy prices for an extended period, worsening supply chain bottlenecks, and disruptions to Russian gas deliveries could prove to be headwinds to our forecasts.”

European equities have bounced off two-month lows in the past week or so, but are down 11% this year, with investors still having plenty to worry about. Elevated commodities prices are fueling inflation and causing central banks to tighten monetary policy, while increasing recession fears. At the same time, Treasury yields have risen to their highest level since 2018 this month, weighing on stock prices.

“We are still wary on equities given the very difficult geopolitical and macro backdrop,” said TFS Derivatives strategist Stephane Ekolo, who has the lowest target in the Bloomberg panel at 380, implying 13% downside from Tuesday’s close. Ekolo sees long-lasting headwinds and risk of margin pressure going forward.

While share prices have been declining this year, analysts have been reluctant to cut profit forecasts, as first-quarter earnings were reassuring, with the vast majority of companies beating estimates. Consequently, valuations have fallen, making European stocks look cheap, especially compared with US peers.

“We think real bond yields have peaked, with the Fed tightening cycle increasingly fully priced,” said Bank of America Corp. strategist Milla Savova. “This means any equity market weakness from here will likely no longer be driven by multiple compression, but by earnings downgrades,” she added. 

Savova sees slowing economic growth implying a further 7% downside for the Stoxx 600 to 410 by early in the fourth quarter, before a mild bounce to 430, BofA’s year-end target.

The overall bearishness is now being reflected in investors’ positioning. According to BofA’s May fund manager survey, a net 26% of global investors are underweight European equities, up from 17% last month and the highest level since July 2012. Additionally, 70% of European fund managers now think the region’s equities have peaked for the cycle, up from 41% last month.

Still, it’s not all doom and gloom. Some strategists like JPMorgan Chase & Co.’s Mislav Matejka believe stocks have found a bottom with the Federal Reserve reaching peak hawkishness and corporate margins proving more resilient than expected. The strategist has a 500 points target for the Stoxx 600 this year, implying nearly 14% upside from Tuesday’s close.

“Put together, if recession doesn’t come through, multiple de-rating was already very substantial, and given the reduced positioning and downbeat investor sentiment, equities stand to recover from here,” Matejka said.

For tables on the Euro Stoxx 50 and Stoxx 600 polls click here; for a table on the DAX poll click here, for a table on the FTSE 100 poll click here.

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