MILAN (Reuters), BofA Global Reseach has reduced its outlook for European stock markets. They are predicting a drop of almost 10% in European stocks by the year’s end due to a shift towards “anti-goldilocks”, a macro background that favors slower growth and higher discount rates.

BofA received a Friday note stating that it sees the index dropping to 420 points by the end of 2021 and has downgraded from neutral to negative.

It was at around 452 points Friday.

European stock prices have increased by 70% in the last 18 months, aided by strong economic recovery and a nearly 200 basis point drop in “real”, or bond yields (the discount rate for equity), since March 2020 BofA advised clients.

Real bond yields have been rising again due to more hawkish rhetoric from the central banks. The bank stated that they expect the trend to continue.

The macro background for equity markets shifting from goldilocks (i.e., accelerating growth and a falling discount rate) to anti-goldilocks (slowing growth and a rising discount rate). They said that anti-goldilocks would be a shift from goldilocks (accelerating growth with a falling discountrate) to goldilocks, which will result in slowing growth and rising discounts.

The note stated that capital goods, automobiles, and diversified financials were all reduced to below-weight.