Why it might be time to pull back on European stocks

Investors are often guilty of thinking things can only get better yet there appears to be little room left for European stocks to improve, according to a strategist at Deutsche Bank.

“If everything is as good as it gets then you have to position yourself for a softening,” Sebastian Raedler, European equities analyst at Deutsche Bank, told CNBC on Friday.

Raedler argued that investors should position themselves for what will likely happen in the future rather than the strong economic data the market has seen over the summer.

The euro zone grew 0.6 percent in the three months through June, while on an annual basis the bloc’s gross domestic product (GDP) expanded by 2.3 percent. Meanwhile, unemployment in the euro zone has been driven down to near-decade lows as the region recovers from the debt crisis.

“While the investor’s psychology is always (tempted to think) the markets have gone up by 25 percent, banks have outperformed up 30 percent in the backdrop, then you say OK they have done so well, surely I want to be part of that party?

“But it is really like coming to a party at four in the morning … Everybody is already drunk and the question is, is that the moment to get yourself ready for action or is that the time to pull back? We think it is time to pullback,” Raedler added.

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