Which European stock sectors are expected to benefit most from the ECB's upcoming interest rate hikes, and why?

Banks are expected to benefit most as they serve as a 'good proxy to play higher bond yields and inflation on the stock market,' with analysts citing Irish and Dutch banks as relative winners; energy companies are shielded by strong cash flows from booming oil sales; in contrast, utilities and real estate face risk as traditional bond proxies, while consumer-facing shares like luxury stocks are set for strain due to eroded demand from higher borrowing costs.

How do current valuations of European equities compare to those during the previous ECB hiking cycle, and what risk does this pose?

The Stoxx Europe 600 currently trades at nearly 15 times forward earnings, compared to less than 12 times in 2022, meaning European equities are entering this potential rate-hiking cycle at far higher valuations — leaving them vulnerable if yields rise further, according to Goldman Sachs analysts.

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