For the first time in eight years, not a single strategist surveyed by Bloomberg anticipates a significant decline in the European equity market for 2026. The Stoxx Europe 600 Index is projected to rise about 7% by the end of next year, reaching 620 points, according to the median forecast. This level of unanimous optimism was last seen for 2018, a year when the Stoxx 600 ultimately plunged 13%. Among the 17 strategists polled, no "true bears" are present, with four firms including UBS Group AG and Deutsche Bank AG forecasting a nearly 13% surge, while ING Groep NV has the lowest forecast, implying only a 3% downside.
JPMorgan Chase & Co.'s Mislav Matejka, head of global and European equity strategy, views this as a good entry point for European stocks, targeting 630 points. He expects earnings to rebound significantly next year and foresees stimulus follow-through, especially with a potential pickup in China. Matejka also suggests that US inflationary pressures might lead to a watering down of tariffs, benefiting export-oriented regions like Europe. Citigroup's Beata Manthey, head of European equity strategy, with a target of 640 points, notes a strong improvement in economic data and positive earnings revisions, attributing future gains to resilient global growth, fiscal stimulus, and relaxed monetary policy in Europe. She favors banks for their domestic story and healthcare for international exposure.
European equities have seen a strong performance in 2025, with the Stoxx 600 up 15% and on track for a third consecutive year of gains. This was driven by investor interest in diversification outside the US, attracted by lower valuations, accommodative monetary policy, and increased government spending. Local benchmarks delivered stellar returns, with Spain's Ibex 35 soaring 47%, the UK's FTSE 100 gaining 19%, and Germany's DAX jumping 23%. In contrast, France's CAC 40 lagged with a 9.8% gain. The advance in 2025 was heavily concentrated, with the banking sector contributing 45% of Stoxx 600 returns and defense stocks making up 13%. Further gains may require a broader rally, and skepticism exists regarding the extent to which fiscal spending will translate into earnings. The European Central Bank is also likely done cutting rates.
However, there are cautionary signs. The economic outlook shares similarities with conditions preceding 2018, when strong forecasts, low rates, and around 10% earnings growth preceded a volatile year marked by an economic growth scare. Bank of America Corp. strategists, led by Sebastian Raedler, remain cautious despite the optimistic consensus, citing US labor market fragility and softening economic growth. They project an 8% downside for the Stoxx 600 to 530 by the second quarter of 2026, followed by a recovery to 565 by year-end. Despite these risks, European valuations remain attractive, with the Stoxx 600 trading at a 35% discount to the S&P 500 based on the forward price-to-earnings ratio. Support from over €2 trillion ($2.3 trillion) in grid and clean-power investment, along with Germany’s €500 billion off-budget infrastructure fund and rising defense commitments, is expected to bolster the European economy for years.
