Banks Lead Europe Stocks Lower in Worst Start to Year Since 2009

  • Stoxx 600 has stalled after 14% rebound through March 14
  • Commodity producers are the only group that rose this quarter

Finding a Way Forward for the Global Banking Industry

European stocks extended their third quarterly drop in four to wrap up what has been the worst start to a year since the financial crisis.

Lenders helped drag the Stoxx Europe 600 Index down 1.1 percent at the close of trading, trimming its monthly gain to 1.1 percent. After rebounding 14 percent in five weeks through March 14, the gauge’s advance has stalled, putting its quarterly drop at 7.7 percent. That’s the worst first-quarter performance since 2009, with all but one of 19 industry groups falling.

After beating U.S. equities last year by the most in a decade, European stocks are now trailing them by the most since 2003. While the Stoxx 600 has bounced back from every quarterly drop but one since 2011, the companies in the index are now losing two of their remaining lifelines: analysts have slashed profit estimates this quarter, forecasting declines for the year, while economic data continue to miss projections. Fund managers have withdrawn money for seven straight weeks, the longest streak since 2014, according to a Bank of America Corp. note last week.

“Markets do tend to rebound after bad quarters, but I’m more in the cautious camp,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany. “Stocks have been stuck in no man’s land for weeks now. Investors need more economic growth and earnings upgrades, and macro data still haven’t accelerated. We’re bound to get high volatility and low returns in this maturing equity cycle.”

A gauge tracking volatility expectations for euro-area stocks has climbed this quarter, reaching its highest level since August relative to its U.S. counterpart. The VStoxx Index advanced 3.6 percent on Thursday.

Banks were hurt the most as concerns grew that low interest rates will hit profitability. That took Italy’s FTSE MIB Index and the Swiss Market Index down more than 11 percent this quarter, becoming some of the world’s biggest losers. The U.K.’s FTSE 100 Index slipped just 1.1 percent, the best performance among the region’s key markets, as commodity producers rebounded -- the industry group was the only one to post a gain, up 9 percent.

Even after an 11 percent rebound from a 2 1/2-year low in February, the Stoxx 600 trades at about 15 times estimated profit, below its annual average and more than 10 percent lower than the valuation for the Standard & Poor’s 500 Index.

Lenders from peripheral nations tumbled the most on the Stoxx 600 on Thursday, with Banco Popolare SC and Banco Comercial Portugues SA falling more than 6 percent. That dragged the FTSE MIB and Portugal’s PSI 20 Index down at least 1.4 percent. Energy producers fell for the fourth time in five days, posting the biggest decline of the 19 industry groups on the Stoxx 600.

Among stocks moving on corporate news, Bouygues SA lost 3.6 percent and Orange SA dropped 1.3 percent after the two companies extended a deadline to reach an agreement on their wireless-phone merger plan. French peers Iliad SA and Numericable-SFR SAS fell more than 1.8 percent, while Kabel Deutschland Holding AG lost 3.4 percent.

TUI AG jumped 5 percent as Europe’s largest tour operator said summer bookings and revenue improved from last year. Serco Group Plc rose 3.2 percent after winning a new three-year contract in the U.K. Genmab A/S added 5.7 percent as a study showed its treatment for a type of blood cancer had positive results. Fingerprint Cards AB rallied 5.4 percent after Saxo Bank A/S recommended buying shares of the Swedish maker of biometric technology.

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