Bank of America on Friday raised the year-end target for Europe's STOXX 600 index, citing an improving euro zone growth outlook, as the Iran war-fueled energy shock fades and German fiscal stimulus begins to support activity.
The Wall Street brokerage now expects the benchmark TVC:SXXP to hit 630, compared with the earlier view of 590. The index is currently at more than 3% above BofA's latest target.
Bank of America said the euro area was experiencing a "mini-Goldilocks moment", with economic activity rebounding while inflation pressures moderate. Recent data have shown signs of improvement after weakness linked to higher energy prices earlier this year.
However, the brokerage retained its "underweight" rating on Europe versus global equities.
"We remain negative on European equities despite a more constructive euro area growth outlook: the European market remains priced for perfection," BofA strategist Sebastian Raedler said.
Last month, J.P. Morgan raised its year-end target for the STOXX 600, while Barclays also lifted its forecast and dropped its bearish stance on European equities.
BofA said its economists expect euro area domestic demand growth to reaccelerate through year-end, supported by the fading energy shock, a less hawkish European Central Bank and the German fiscal stimulus.
Earlier this week, data showed euro zone inflation rose less than expected in June, while a separate report by S&P Global showed that overall business activity moved out of contraction territory last month for the first time since March.
BofA said European equities remain vulnerable as record-high margin expectations and low risk premia leave little room for disappointment.
The firm expects the STOXX 600 to trough at 595 by early fourth quarter, as rich valuations, a potential slowdown in AI-driven market momentum and rising credit risks weigh on equities in the near term. The index is expected to then recover toward its year-end target.
The brokerage also upgraded the UK to "overweight" from "marketweight", while maintaining an overweight view on Germany, saying both markets appear overly pessimistically priced relative to their economic outlooks.