UBS and Deutsche Bank back Europe's stock rally

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European stock targets rise

Highlights

UBS raised its Stoxx 600 target to 690 points.
The average strategist forecast is now 647 points.
Only five of 18 respondents expect declines.
Earnings upgrades are supporting the rally.

The average forecast from 18 strategists now puts the Stoxx 600 at 647 points by the end of 2026, less than 1% above current levels, Bloomberg reported. Only five respondents expect the index to decline, while UBS became the most bullish house in the survey after lifting its target to 690 points, implying about 8% upside.

Earnings outlook improves

The shift reflects stronger bottom-up evidence across major European sectors. Healthcare, consumer staples, and luxury have fewer obvious negative catalysts, while banks, industrials, and companies tied to AI spending offer more scope for earnings upgrades.

European stocks reached fresh record highs this month as investors returned to the region after earlier concerns about the Iran war eased. The rally has held up even as Middle East tensions resurfaced and oil prices climbed, partly because crude remains far below its April intraday peak.

Earnings revisions are also giving strategists more confidence. A Citigroup gauge of European earnings revisions excluding the U.K. rose to its highest level in five years, with 80% of sectors in net upgrade territory. Profit estimates point to earnings-per-share growth of 14% in 2026 and 10% in 2027.

Rally broadens, but risks remain

The second-quarter reporting season has started on a stronger note, with several companies delivering upgrades. More than 45% of firms have beaten estimates so far, while 27% have missed. Earnings growth is tracking 11.6% year over year, broadly in line with expectations.

Investor sentiment has also improved. A Bank of America fund manager survey showed a net 37% of European investors now expect a “Goldilocks” environment of stronger growth and cooling inflation over the next three months. A net 54% expect regional equities to rise, compared with a net 4% expecting declines in June.

Still, the rally is not without weak points. Société Générale sees the Stoxx 600 falling to 600, while TFS remains the most bearish with a 585-point target. Concerns include high earnings expectations, tariff risks, rising bond yields, U.S. midterm elections, and the fragile Middle East backdrop.

Europe regains market attention

The change in tone matters because Europe had long traded at a valuation discount to the U.S. Now, stronger earnings, fiscal stimulus, and exposure to AI-related spending are giving investors a reason to re-enter the market.

The main question is whether profit growth can justify record index levels. For now, earnings revisions and fund flows are moving in Europe’s favor, but the rally remains exposed to oil, geopolitics, and any disappointment from heavily owned AI and financial stocks.

Earlier, we reported that U.S.-Iran conflict widens as Hormuz shipping traffic falls.

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