A rally that drove the Dow Jones Stoxx 50 Index of European companies 14 percent higher in less than three weeks may stall in coming days as economic growth sputters, investors said.
"It's not the end of the bear market," said Peter Mileham, who helps manage 20 billion euros (US$19.4 million) of global assets at BSI AG in London. ``There will be another downward leg'' in share prices.
The Stoxx 50 rose 1.7 percent to 2,779.89 Friday, taking its climb for the week to 6.7 percent, the biggest since late September. Some of the year's worst performers, such as insurers Axa SA and Aegon NV, led the advance as concern eased that Brazil would default on debt and there would be war in the Gulf.
Over the past 12 sessions, reports that economic growth is slowing contributed to declines of more than 3 percent on four occasions. On Friday, the Stoxx 50 fell as much as 1.8 percent before rising.
"There have been major swings in stocks," said Mileham.
"It's volatile because there is a lack of clarity" regarding the economy and earnings. He sold Vivendi Universal SA shares yesterday after buying them earlier in the week.
The outlook for second-half profits is deteriorating, according to research from Thomson Financial Services, which said analysts reduced their average 2002 profit-growth forecasts for companies in FTSE All-World Europe Index by 4.1 percent in July from June.
UBS AG, the biggest Swiss bank, Credit Suisse Group, the second-largest bank in Switzerland, Roche Holding AG, a maker of diagnostic products, and Storebrand ASA, Norway's largest insurance company, all report earnings next week.
Deutsche Bank AG cut its 12-month share-price forecast for Credit Suisse by 28 percent and its recommendation on UBS stock to ``market perform'' this week on concern business may slow in the second half. Vivendi, the French media company that has tumbled 74 percent this year, reports earnings on Wednesday.
"I'm wary about how much more the market can rally," said David Ballance, who oversees US$800 million as head of European equities at Rothschild Asset Management, which recently sold shares in Scandinavian paper companies UPM-Kymmene Oyj and Stora Enso Oyj. "Things are still a bit shaky" on the earnings front.
Lehman Brothers Holdings Inc, Deutsche Bank Securities Inc, Dresdner Kleinwort Wasserstein Securities LLC and Goldman, Sachs & Co have predicted the Fed will lower its benchmark interest rate this year.
"I wouldn't be surprised if they cut" rates, said Stuart Fowler, who helps manage 20 billion euro (US$30.5 billion) at Axa Investment Managers in London.
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