European equity strategists have become increasingly optimistic as accelerating earnings growth, improving economic momentum and confidence in the market's resilience support the outlook for regional stocks. UBS Group NYSE:UBS, whose strategists were the most bullish participants in Bloomberg's July survey, expects the Stoxx 600 to rise about 8% by the end of 2026 after increasing its target to 690 points. Bank of America, Deutsche Bank and Kepler Cheuvreux also raised their forecasts for the European benchmark. The 18 strategists surveyed expect the index to finish 2026 at an average of 647 points, representing less than 1% upside from current levels, while only five participants forecast a decline.
Gerry Fowler, a UBS strategist, said he had previously been too cautious and now believes the market may face more upside risk than downside risk. Fowler noted that negative catalysts are becoming more difficult to identify across major sectors including healthcare, consumer staples and luxury, while AI enablers, banks and industrial companies may have greater potential for positive earnings revisions. Citigroup, whose strategists track European earnings expectations, reported that its earnings-revision gauge for Europe excluding the UK had reached its highest level in five years, with 80% of sectors in net upgrade territory. European earnings per share are projected to increase 14% in 2026 and 10% in 2027, while more than 45% of companies reporting so far have exceeded estimates and only 27% have missed them. Earnings growth is tracking 11.6% year over year, broadly matching consensus expectations, as the second-quarter reporting season produces several stronger-than-expected updates, including one from ASML Holding, described in the source as Europe's most valuable company.
Investor sentiment has also improved after concerns surrounding the Iran war faded following the April ceasefire, although renewed Middle East tensions, higher oil prices, tariff risks, rising bond yields and the US midterm elections may still weigh on the rally. Societe Generale, whose European equity strategy team remains cautious, expects the Stoxx 600 to fall to 600 points because the earnings recovery may not be strong enough to meet expectations already reflected in stock prices, while TFS forecasts a 9% decline to 585 points. Bank of America's latest fund manager survey showed that a net 54% of European investors expect regional equities to rise over the next few months, compared with a net 4% expecting declines in June. A net 37% also anticipate a Goldilocks environment of solid growth and easing inflation over the next three months, suggesting investors may be rebuilding confidence in European equities even as market participation remains narrow and oil prices remain a potential risk.