Bank of America (NYSE:BAC) is negative on European equities as they see a "classical slowdown" as a likely scenario.
The bank says ambiguous macro data leaves the market jittery about the outlook for growth and inflation.
"It is a typical feature of late-cycle environments that macro data start to become ambiguous, with some data reflecting the strong activity levels and overheating pressures associated with a tight labour market, while others foreshadow the dampening impact of the tight monetary policy normally in place at this stage of the cycle," explains the bank.
"The current episode is no exception, with recent macro data prints offering support to all four possible combinations in the growth-inflation matrix: Goldilocks, higher-for-longer, stagflation and classical slowdown."
Furthermore, analysts argue that with European cyclicals versus defensives close to a 30-year high and the European equity risk premium at the lowest since 2007, much of the good macro news is already in the price.
"We see scope for slowing growth and stay negative on European equities," adds BofA.
The bank says the best gauge of the global macro-cycle is the US labor market, with an increase in the unemployment rate typically signaling that the transition from late-cycle to end-of-cycle dynamics has started, with the signs historically presaging labor-market weakness in place.
In addition, analysts say that inflation has mostly unwound the undershoot to the subdued levels of supply-chain stress, implying softer inflation momentum ahead.
"As a consequence, we remain positioned for a classical slowdown, in which softening growth and fading inflation are accompanied by rising risk premia and declining EPS expectations," concludes BofA.