JPMorgan strategists, under Mislav Matejka, have become the most bullish analysts on European stocks, raising their year-end target for the Stoxx Europe 600 index to 680 points and the Euro Stoxx 50 index to 6,800 points. This represents potential increases of approximately 7% and 9% respectively from recent closing prices. The firm expects earnings per share (EPS) in the Eurozone to grow by 18% in 2026 and 12% in 2027, driven by accelerating profit growth after three years of stagnation.
The surge in European earnings is attributed to several factors identified by JPMorgan. These include a maturing unwind of AI/momentum stocks leading to a rotation in the second half of the year, and an extension of the EU's Carbon Border Adjustment Mechanism (CBAM) phase-out of free allocations until 2038, which is less negative than initially expected. Eurozone EPS revisions have also accelerated for 15 consecutive weeks, now matching US levels.
While AI-related capital expenditure and higher energy prices are significant drivers of global earnings growth, particularly in emerging markets and the US, other sectors are also contributing. In the Eurozone, two-thirds of earnings growth comes from sectors outside of AI enablers and energy, indicating broad-based domestic economic resilience. Industries such as banks (due to favorable interest rate curves and loan growth) and industrials (benefiting from defense, infrastructure, and power grid upgrades) are performing well. Conversely, energy companies might face pressure if oil prices decline, and defensive sectors are expected to be less in demand. JPMorgan recommends buying into the consumer sector, semiconductors, industrials, mining companies, and banks, while maintaining caution on business services, software developers, and media sectors.
European equities have shown resilience, with international equities up 13.1% year-to-date, outperforming US equities. Despite geopolitical tensions, including the recent conflict in Iran that impacted European stocks due to energy reliance, Eurozone stocks began to outperform again after a preliminary peace agreement in mid-June. Citi Research also notes a strong five-year high in European earnings revisions, with a 30% increase in the Europe ex-UK Earnings Revisions Index, signaling broad-based sector upgrades and momentum.
