Leading global financial institutions are revising their outlook on the European stock market upward. UBS analysts have raised their target for the Stoxx Europe 600 index to 690 points, forecasting an 8% increase from current levels by the end of 2026. This decision is not just optimism, but a reflection of fundamental changes in Europe's corporate sector.
After a volatile first half of the year, the European stock market has not only fully recouped previous losses but also hit new all-time highs. On July 3, the index recorded another record at around 652 points. The indicator has now corrected to 639 points, but total year-to-date returns exceed 7%. Geopolitical tensions around Iran have eased due to a ceasefire agreement, reigniting the upward trend.
Why banks raised their forecast for European stocks
UBS strategists Gerry Fowler and Sutanya Chedda raised the target to 690 points from the previous 630. The bank expects the rally to continue into 2027. The forecast for the index for that period is 760 points — a 19% increase over the next year and a half.
The 2026 forecast from UBS is higher than that of JPMorgan (680 points), which previously offered the highest estimate. Bank of America, Deutsche Bank, and Kepler Cheuvreux have also raised their forecasts.
Analysts highlight stronger momentum in the segment related to artificial intelligence, stable revisions of bank indicators, and reduced pressure from defensive sectors.
Strategists' views on the further scenario diverge
In a July survey, 18 strategists on average expect the index to rise to 647 points by the end of 2026. This is less than 1% above current levels, but the number of bearish forecasts is decreasing.
Only 5 out of 18 respondents believe the index will decline by the end of the year. Just two forecast a drop of more than 5%.
The most cautious assessment comes from TFS, expecting a 9% decline to 585 points. Next is Societe Generale: strategist Roland Kaloyan forecasts a correction of about 6%, to 600 points. According to him, high expectations leave no room for disappointment — any deviation from them could negatively impact market dynamics.
"The main risk, in our view, is not a lack of earnings growth, but that the recovery will be weaker than the expectations priced in," Kaloyan explained.
The next test is second-quarter financial results. Forecasts have already been exceeded by more than 45% of companies, while 27% reported worse-than-expected results.
My analysis: The market is pricing in an ideal scenario, but reality may prove more complex. An 8% rise by the end of the year is an achievable goal given a stable macroeconomic environment and sustained momentum in the technology sector. However, the high concentration of expectations creates a risk of sharp correction in the event of any negative surprise.