Economic pessimism may be setting stage for rally in stocks, Citi says

The depth of the negative sentiment surrounding the global economy may presage share price gains are just around the corner, if history is any guide, strategists at Citi said.

On average, in the 15 times since 2005 in which Citi´s economic surprise index had fallen below the -50 point level European equities had registered gains of +6%, +9% and +17% in the 90, 180 and 360 days afterwards, strategist Jonathan Stubbs said in a research report sent to clients.

By sectors, automobiles and insurance had done best in the 90 days following such readings, with chemicals and personal&household joining in over a 360 day horizon.

From a style perspective, value was the strongest performer across those same time frames, outperforming on average by 4-5% in the next 90 to 180 days after such readings, he said.