(Bloomberg) - For the first time in eight years, market forecasters are making a bold call on Europe: not a single strategist surveyed by Bloomberg predicts a significant equity market decline in 2026.
The Stoxx Europe 600 Index is expected to rise about 7% by the end of next year, reaching 620 points, according to the median forecast. The last time strategists were this uniformly bullish was for 2018, when the Stoxx 600 plunged 13%.
True bears are nowhere to be found among the 17 strategists polled. Four strategists, including those at UBS Group AG and Deutsche Bank AG, see a surge of nearly 13% from Wednesday’s close. ING Groep NV has the lowest forecast, with a target that only implies 3% downside.
“This is a good entry point in European stocks,” said Mislav Matejka, head of global and European equity strategy at JPMorgan Chase & Co, who has a target of 630. “Earnings can rebound much more meaningfully next year, and there will be some stimulus follow through, especially if China picks up.”
Matejka said tariffs may be watered down to ease US inflationary pressures, which would benefit exporter regions such as Europe.
The region’s equities have had a strong 2025, with the Stoxx 600 up 15% and on track for a third straight year of gains. Stocks benefited from interest by investors seeking diversification outside the US, drawn by lower valuations, more accommodative monetary policy and the promise of increased government spending.
Local benchmarks delivered stellar returns, with Spain’s Ibex 35 soaring 47%, UK’s FTSE 100 gaining 19% and Germany’s DAX jumping 23%. By contrast, France’s CAC 40 has been trailing with a 9.8% gain.
In an ominous sign, the economic outlook bears similarities to conditions heading into 2018. Forecasts were strong, rates were low, earnings growth was around 10% and stocks had ended 2017 with a nearly 8% advance. It turned out 2018 was volatile and marked by an economic growth scare.
Strategists were pessimistic about Europe at the beginning of 2025, expecting very little upside. Tariffs were a major threat to exporters, while political turmoil in France and the UK had deterred investors. In the end, bulls at Citigroup Inc., Deutsche Bank and Oddo BHF were proved right with their forecasts as the year turned out much better than anticipated.
Europe has seen a strong improvement in economic data, said Beata Manthey, head of European equity strategy at Citigroup. Earnings revisions are net positive and improving. The strategist has a 640 points target for the Stoxx 600 and expects a year of resilient global growth. In Europe, fiscal stimulus and relaxed monetary policy will fuel an impact.
“Things are going slowly in the right direction,” Manthey said. “I see a pickup in cyclical stocks and a continuation in the domestically reliant sectors. I like banks for the domestic story, and I couple it with some international stories like health care.”
Still, the year may not be a walk in the park. The advance of 2025 was heavily concentrated in banks and defense. The banking sector accounted for 45% of Stoxx 600 returns, while defense stocks made up 13%.
Further gains may require a broader rally, while skepticism has grown about how much fiscal spending will feed into earnings. Meanwhile, the European Central Bank is likely done cutting rates.
The market is “under-pricing risks,” according to Bank of America Corp. strategists led by Sebastian Raedler, who see US labor market fragility and softening economic growth ahead. “Against the optimistic consensus, we maintain a cautious view, with projected downside of 8% for the Stoxx 600 to 530 by the second quarter, followed by a recovery to 565 by year-end.”
Still, with more than €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, the European economy is expected to be supported for years to come. Valuations remain attractive, with the Stoxx 600 still trading at a 35% discount to the S&P 500, based on the forward price-to-earnings ratio.
What Bloomberg Intelligence strategists say:
“The Stoxx 600 offers only modest upside through 2026, with further gains increasingly reliant on earnings delivery rather than multiple expansion. Easing wage and energy pressures should support margins and former laggards such as autos, energy and basic resources should underpin some profit gains.”
“After several years of valuation-led performance and consensus earnings disappointment, we, for the first time in three years, forecast a return to earnings growth,” wrote UBS strategists led by Gerry Fowler. “Consensus expectations point to earnings per share rising by 10–11%. This may prove a little too high but we think it’s close to fair.”
By Michael Msika and Sagarika Jaisinghani
