SocGen: This Really Looks Like Global Stock Market Déjà Vu

SocGen this morning has some interesting charts on where European (and maybe U.S.) equities are headed.

In the short term, they basically expect a repeat of last year’s performance, as 2012 has already looked strikingly similar to 2011 thus far and we appear to be caught amidst similar macro headwinds.

Here are European stocks so far in 2012 versus last year, with the only noticeable difference apparent from the lift the ECB gave markets via the LTRO it announced back in February.

SocGen says that “by flooding the economy with massive liquidity, Central Banks only delayed the expected sell-off.” It appears to have resumed:

Chart

Photo: Société Générale

The S&P 500 is doing the same thing as well, with the LTRO bump apparent there, too. It looks like even the S&P 500 is beginning to realign with last year’s price action pretty well:

Chart

Photo: Société Générale

In the long term, SocGen says that European equities will follow the path of those in Japan during their lost decade. What this means is that European stocks should display high cyclicality as the long-winded European deleveraging process plays out.

This trend has been well underway since 2008. Here is what it looks like:

Chart

Photo: Société Générale

Another feature of the deleveraging that SocGen expects is that European banks could “massively underperform the overall market” during the deleveraging process like in Japan:

Chart

Photo: Société Générale

Looks like a bumpy road ahead this year and beyond for European stocks.

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