UBS has significantly upgraded its outlook on European equities, moving from cautious to "Attractive" due to an anticipated earnings recovery and more favorable cyclical dynamics. The firm has become the most bullish in a recent survey, lifting its target for the Stoxx 600 index to 690 points, implying an 8% upside by year-end. This new target is a notable increase from the average forecast of 647 points by 18 strategists for the end of 2026, which is less than 1% above current levels.
This optimistic shift is underpinned by strong bottom-up evidence, with UBS strategist Gerry Fowler noting that negative catalysts are becoming increasingly scarce in key sectors like healthcare, consumer staples, and luxury goods. Conversely, themes with positive revision potential, such as AI-empowered companies, banks, and industrials, are growing. UBS has also upgraded European banks to "Attractive" while downgrading real estate to "Neutral" and Switzerland equity to "Neutral" as a potential source of funds.
Investor sentiment has also improved, with a Bank of America fund manager survey indicating that 37% of European investors expect a "Goldilocks" environment of stronger growth and cooling inflation over the next three months. A net 54% now expect regional equities to rise, a significant increase from 4% in June. Citigroup's gauge of European earnings revisions (excluding the U.K.) has reached a five-year high, with 80% of sectors in net upgrade territory. Profit estimates project earnings-per-share growth of 14% in 2026 and 10% in 2027.
