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Morgan Stanley: Don’t Believe Market Hype Over Trump and Le Pen

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“The surprise for next year could be that the U.S. has a hard time living up to expectations,” said Sheets, who advises switching equity allocations out of America and into Japan as his top trade recommendation for 2017. “Investors may be overlooking low potential growth and headwinds from tighter financial conditions.”

One indicator that supports a bullish stance on European stocks in the coming 12 months is that the earnings potential of companies listed on the STOXX 600 Index has climbed to a one-year high, according to data compiled by Bloomberg, after falling to a six-year low in July. 

In addition, elections in France and Germany are more likely to either maintain the status quo or bring to power more market-friendly leaders, according to Sheets, who doesn’t think far-right parties such as Marine Le Pen’s National Front have any chance of succeeding.

“Last year we favored the U.S. over Europe and Japan, and this year I see that as being flipped around,” he said. “Europe actually has a lot of things going for it. There’s a lot of potential for European earnings to rise next year because the base is so low.”

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