UBS, Deutsche Bank Turn More Bullish on Stoxx 600

Accelerating earnings growth and confidence the rally can withstand the latest geopolitical jitters means strategists are increasingly optimistic about European stocks, a Bloomberg survey shows.

(Bloomberg) — Accelerating earnings growth and confidence the rally can withstand the latest geopolitical jitters means strategists are increasingly optimistic about European stocks, a Bloomberg survey shows. UBS Group AG are the biggest bulls in the July edition of the poll, predicting gains of 8% for the Stoxx 600 index by year end after hiking their target for the benchmark.

There were increases too from Bank of America Corp., Deutsche Bank AG and Kepler Cheuvreux. The 18 strategists canvassed see the index closing out 2026 at 647 points on average. While that’s less than 1% higher than current levels, pessimistic calls are becoming scarce, with only five participants tipping declines.

“There’s probably more upside than downside risk at this point,” said UBS strategist Gerry Fowler. He said he had been “too cautious” previously and raised his target to 690 points. Bottom-up evidence suggests that negative catalysts are becoming “harder to locate” among many heavyweight sectors such as healthcare, consumer staples and luxury, Fowler said.

Meanwhile, the list of themes with scope for positive revisions is getting longer, he said, citing AI enablers, banks and industrials. European stocks made fresh record highs this month, with investors increasing exposure to the region again as worries about the Iran war faded after the April ceasefire. The rally has so far survived the resurgence in tensions and while oil prices have climbed, they remain about $40 below an intraday April high.

On a bullish note, a positive global economic backdrop and heavy fiscal stimulus in Europe combined with the benefits of AI spending and adoption have buoyed sentiment. A Citigroup Inc. gauge of earnings revisions for Europe excluding the UK has surged to its highest level in five years, with 80% of sectors now in net upgrade territory, the bank’s strategists said. “We continue to be constructive on the European equity outlook over the next 12 months and are encouraged by the recent developments in European earnings revisions,” said Beata Manthey, head of European equity strategy at Citigroup.

“Recent upgrades stand out for their magnitude, breadth and timing.” The range of forecasts in the Bloomberg survey has widened, but only two strategists predict declines exceeding 5%. TFS remains the most pessimistic, forecasting an 9% drop to 585 points, followed by Societe Generale SA, which sees a slide of about 6%.

“We expect the Stoxx 600 to trade modestly lower by year-end, with a target of 600, mainly reflecting our more conservative earnings outlook,” said Roland Kaloyan, head of European equity strategy at SocGen. “In our view, the main risk is not the absence of earnings growth, but that the recovery falls short of what is already priced in.” He flagged that expectations are already high, with the strongest performance concentrated in the AI and energy complexes.

For Kaloyan, macro-economic threats to stocks can’t be disregarded, pointing to the fragile backdrop in the Middle East, US mid-term elections, tariff risks and rising bond yields. Profit estimates for Europe have kept rising, even during the war, with 14% earnings per share growth projected for 2026 and 10% in 2027. The second-quarter reporting season just underway has already served up a host of “beat and raise” updates, including from ASML Holding NV, Europe’s most valuable company.

To date, more than 45% of firms have exceeded estimates, while only 27% have missed. Earnings growth is tracking 11.6% year-on-year, in line with consensus, according to a Bloomberg Intelligence tracker. What Bloomberg Intelligence strategists say: “The Stoxx 600’s record highs mask weaker institutional participation and lower volumes than before the Middle East conflict as institutional investors have turned net sellers.

Gains are narrow, relying mostly on financials and AI stocks, while half of sectors trail. Widespread earnings downgrades and fading energy tailwinds add to the risk that the rally loses momentum.” — Laurent Douillet, senior equity strategist.

Click here for full report After turning more cautious last month, European investors are showing signs of bullishness again, while global asset allocators have started to “re-engage” with the region, according to a BofA fund manager survey out this week. A net 37% of European investors expect a “Goldilocks” environment of robust growth and fading inflation over the next three months, making this the dominant market view for the first time since October 2024. A net 54% expect the region’s equities to rise over the next few months, up from a net 4% expecting declines in June, said BofA strategists including Paulina Strzelinska.

“Valuation remains attractive, with earnings resilience a key backstop against higher rates and fundamental support to the broadening trade, although oil direction remains a wild card,” said Barclays Plc strategist Emmanuel Cau. —With assistance from Leslie Nutakor and Sagarika Jaisinghani.