Equities Update: Can European stocks maintain their rally? Reckitt, Harbour Energy, ITV…

Lale Akoner, Global Market Analyst at eToro, says: “The European stock market has been on a strong run, even as recent tariff talks have led to a pullback in some global markets. As policy uncertainty increases, the most speculative parts of the market (expensive momentum assets) tend to be the first to correct, underscoring the importance of geographic diversification beyond the US. With valuations still attractive and a shifting macroeconomic landscape, European stocks provide a strong case for diversification.

What is driving the rally?

“European earnings have played a key role in sustaining market momentum. The Q4 earnings season exceeded expectations, reviving EPS growth after a period of stagnation. Banks have led the way, with names like Santander, Intesa, and BBVA accounting for the bulk of the upside surprises. The tech sector (ASML, Infineon) has also performed well, though luxury giant LVMH and pharmaceutical leader Sanofi have been notable underperformers.

“Germany’s recent election results have been another catalyst. The formation of a centrist coalition has helped avoid extreme fiscal austerity, paving the way for more market-friendly policies. Additionally, chancellor-to-be Friedrich Merz has proposed a €500 billion fund to strengthen the country’s infrastructure and defense. That alone triggered a sharp increase in the DAX40 (+3.54%) on the day of the announcement.

How does this compare to previous rallies?

“Despite making new highs, the rally appears more measured than past peaks. Currently, 74% of stocks in the index are trading above their 200-day moving average, well below the 96% seen in previous market tops, suggesting that momentum, while positive, is not extreme.

“The recent stock surge has occurred alongside stagnant profit margins, echoing patterns last seen in 2015. If companies fail to expand margins in 2025, the rally could lose steam.

Risks to watch out for

“Certain sectors remain especially vulnerable to external risks. Automakers and luxury goods companies face the biggest threats from tariffs from the US, while industries like mining and beverages could also see headwinds if trade relations worsen.

“While European stocks have already seen strong gains, sustaining this momentum will require continued earnings growth, stable margins, and a favourable macro backdrop. “

After growth struggles, Reckitt to refocus on best performing products, while big names get the chop

Mark Crouch, market analyst at eToro, says: “Reckitt missed fourth-quarter sales expectations, posting a 4.6% rise, below analysts’ forecast of 5.3%, while operating profit for the year was up a meagre 3%.

“Reckitt spent much of 2024 rebuilding its reputation after the consumer goods company’s share price plummeted nearly 30% due to a litigation case in the US. Although Reckitt managed to recover some ground, trust in its long-term growth prospects remains fragile.

“Sustaining consistent growth has become a major headache for Reckitt. In response, the company has shifted its strategy, focusing on its “Powerbrands”, key names like Durex, Vanish, and Nurofen, which performed well during the cost of living crisis, and shedding brands such as Air Wick and Cillit Bang, which did not.

“While streamlining their portfolio and focusing on its most profitable brands will free up resources and lower costs, the question remains, What will drive Reckitt’s future growth? Value investors have long been attracted to Reckitt’s consistent dividend, however with such inconsistent earnings growth and Reckitt’s decision to pull up the drawbridge on big name products, it remains to be seen whether investors will be convinced.”

Windfall tax wipes out Harbour Energy’s profits… Again

Mark Crouch, market analyst at eToro, says: “Harbour Energy’s acquisition of Wintershall DEA in September was expected to propel the UK’s largest independent oil and gas company into the upper ranks of the industry. Unfortunately, since the deal, shares have plummeted, made worse by falling oil prices. The company reported a £93 million loss for the year, largely due to the UK’s windfall tax, which once again erased profits.

“However, there are some positive takeaways from the results. Harbour’s production is set to more than double as a result of the acquisition, and its oil and gas reserves have tripled. Combined with a punchy dividend and plans for share buybacks, the outlook may not be as bleak as it seems.

“So, has Harbour bitten off more than it can chew? The scale of the acquisition certainly comes with risks. Harbour has taken on a substantial amount of debt, and if oil prices don’t recover, the company’s high dividend could come under threat. That said, the management team points to its track record, having completed four acquisitions since 2017, each involving high levels of debt but with the goal of coming out stronger.

“For now, though, Harbour’s share price doesn’t reflect this long-term growth potential.”

ITV tightening its belt and weathering the storm

Adam Vettese, market analyst at eToro, says: “ITV has been in the trenches due to a number of factors, including the writers’ strikes, a tougher advertising market and generally lower demand for free-to-air tv. The company has responded by leaning into its digital service and content creation, and carving out as many cost savings as possible – which has been more successful than anticipated.

“The strikes pushed £80m of revenue from 2024 to 2025, which is a hit on timing as opposed to a structural collapse but stings nonetheless.

“ITV has faced the challenges thrown at the company well and shares are trading cheap compared to historical averages. If ITVX and Studios can deliver and the advertising revenue isn’t too fickle, it’s not to difficult to see shares kick on from where they are currently trading.”