UBS Group strategists have declared that stronger earnings and a broadening rally will propel European stock markets to new highs this year. This stance positions them as the most bullish forecasters among those tracked by Bloomberg.
Strategists Gerry Fowler and Sutanya Chedda have raised their year-end target for the Stoxx Europe 600 index from 630 to 690 points. This new target implies an approximate 8% upside from current levels, surpassing the previous high forecast of 680 points set last month by JPMorgan's Mislav Matejka.
The UBS team envisions this upward trajectory extending into 2027, setting a target of 760 points. This projection suggests a potential 19% growth over the next 18 months.
UBS Strategists See Further Room for European Equity Gains
In their analysis, the strategists wrote that "it is time to be less cautious." They cited more resilient and better-than-expected earnings as the primary reason for lifting their Stoxx 600 target.
The team identified three key shifts: stronger-than-anticipated upgrades related to artificial intelligence, continued positive earnings revisions for bank stocks, and the fact that large defensive sectors are no longer dragging the index down, partly due to a weaker euro. They argue these changes are sufficient to support over 10% earnings growth and higher valuations.
European equities have already recovered from a sell-off triggered by the Iran-Israel conflict, and renewed geopolitical tensions are not seen as powerful enough to derail the current rally. While economic data presents a mixed picture, analysts have continued to raise profit expectations ahead of the second-quarter earnings season, which is anticipated to deliver around 12% profit growth.
European Stock Rally Primarily Driven by Earnings Growth
Fowler and Chedda believe the upcoming earnings season will further solidify the growth momentum. They expect it to confirm that Europe's economic fundamentals are stronger than current sentiment suggests.
They stated that investors will likely focus on three key questions: whether AI-related upgrades are continuing, if bank stocks are still delivering positive earnings revisions, and whether defensive sectors have finally stabilized. The answers to these, they contend, should support the recent improvement in market sentiment.
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