A softer stance on inflation by the European Central Bank and more rate cuts from the Bank of England would boost European stocks, and investors could cautiously start to buy shares again, analysts said a day before the two banks meet to decide on interest rates.
But a full recovery in stock markets is still a remote prospect, as volatility dominates trading, with more bad news expected in the coming months.
"The ECB decision will not be a surprise. Financial markets expect no change (on rates), and I think that will happen," Bert Burger, a strategist at Theodoor Gilissen Bankiers, Amsterdam, told CNBC.com.
But "if they are a bit dovish, equities markets could react positively," Burger added.
Since the credit crunch hit Europe in August last year, major indexes have dropped sharply, with the financials bearing the brunt of the fall.
London'sFTSE-100 lost around 7 percent of its value over the past six months, the Frankfurt DAX shed nearly 10 percent, while the Paris CAC 40 plunged by more than 17 percent and Milan stocks plummeted 18 percent.
The Bank of England is expected to continue its easing cycle, cutting rates by a quarter point on Thursday.
"If they don't, equities markets can react with disappointment," Burger said.
The ECB has stubbornly defended its main goal to fight inflation, which has soared above 3 percent in the 15-member euro-zone, but some analysts have criticized the bank for not taking a look at growth.
"I think the ECB is hopelessly behind the curve," Marco Annunziata, chief economist at UniCredit, told "Worldwide Exchange."
This may be the time for those brave enough to leave the safety of bonds and venture back into stock markets, but with great care.
"Equities markets are quite attractive at the moment," said Burger, who believes most of the negative developments in the economy have been priced in.
"I expect further earnings downgrades, but mid-term and long-term," he said. "I'm a bull. I think in a few months equity prices will go up again."
Pharmaceuticals and industrials are the sectors to look for, he added.
"The producers of capital goods are doing well because of demand from the Far East and Asia," Burger said. "I think we have to stay cautious with the financials."
Oil is King?
Oil is another sector that is likely to benefit from a flight to safety, as the price of crude supports stocks in major companies in the area.
"What you're seeing here, is you're trading the crude oil. In times of volatility you want to be with liquid stocks, and with major shares, not small ones," Jacob Schmidt, CEO Schmidt Research Partners, told "Power Lunch Europe."
On Tuesday, BP shares rose despite a 22 percent fall in profits, after the company promised a more generous dividend policy and pledged it would cut costs to boost profitability.
The European oil and gas sector fell by 12 percent over the past six months, compared with a 40 percent slump for banks and a 26 percent fall for autos.
Auto-makers or tire makers are cyclical stocks, "they suffer from the downturn," therefore they should be avoided, along with banks, Hans Engel, equities analyst, Erste Bank Vienna, told CNBC.com.
Among the global major stocks to buy are Coca-cola, Wrigley, Nestle and utilities companies generally, which are not so much affected by the business cycle, as well as companies with a presence in emerging markets, such as Vienna Insurance Group, Engel added.
Has the Fed had One too Many?
Bullish analysts recommend looking for a recovery in two or three months, when company results will show the extent to which European firms have been affected by the financial markets turmoil.
What is needed for a sustained recovery of the stock markets is more clarity on the health of the financial sector, not necessarily a rate cut from central banks, analysts said.
"The Fed has cut interest rates for the first time on September 18. And look at the market. The Fed is acting like a drunken man," Engel said.
But signs that euro-zone growth is slowing abound, with consumer confidence, retail sales and services in the euro zone taking a dip recently.
The ECB would lose its credibility if it allows itself to be bullied by the market into easing, but at the same time it needs to change its tune to reflect the slowdown, said Annunziata, who expects the bank to cut the rate in the summer.
The dollar is holding its ground against the euro despite the fact that the interest-rate differential between the euro-zone and the U.S. is now in favor of investing in the euro.
Some analysts say that this is because the Federal Reserve is perceived as a bank that is more flexible, and willing to protect growth.
"I wouldn't be surprised if we went back to the $1.44 level fairly quickly," said Simon Derrick, a currency analyst at Bank of New York Mellon.
No matter what the central banks do, though, volatility is likely to continue in global markets, and investors should tread carefully. For those looking for a sign that the wild swings will ease, it may be worth keeping an eye on the banking sector.
Banks still hold the collateralized debt obligations and the structured debt that created the financial markets turmoil, and because of mutual lack of trust, they cannot yet sell them.
"When they start selling them, that's the time to get in" to stock markets, Schmidt said. "It might take 6 months, it might take 2 years."