Leading global banks, including UBS and Deutsche Bank, are radically revising their views on the European stock market. Analysts expect the Stoxx Europe 600 index to rise by 8% by the end of this year, reaching 690 points. This is a serious signal for investors, especially amid ongoing geopolitical uncertainty.
Bullish Reversal: From 630 to 690
After a volatile first half of the year, which nevertheless ended with a new all-time high (the index settled around 652 points on July 3), the market took a pause. The Stoxx 600 has now corrected to 639 points, but total year-to-date returns exceed 7%. It is this recovery that triggered the revision of forecasts.
UBS strategists Gerry Fowler and Sutanya Chedda raised their target from 630 to 690 points for the end of 2026. Moreover, their long-term forecast for 2027 suggests growth to 760 points — a potential of 19% over the next year and a half. Notably, this forecast surpassed JPMorgan's estimate of 680 points, which previously held the highest bar. Bank of America, Deutsche Bank, and Kepler Cheuvreux have also joined the bullish trend, raising their assessments.
Growth Drivers: AI and Banks
Analysts point to several key factors supporting the rally. First, strong momentum in the artificial intelligence segment, which continues to be revalued upward. Second, stable revisions in the banking sector's indicators and reduced pressure from defensive industries. The easing of geopolitical tensions around Iran following a ceasefire also played a role, allowing the upward trend to resume.
Divergent Views: Bears Still Present
However, not everything is clear-cut. In a July survey of 18 strategists, the average forecast for the Stoxx 600 at year-end is just 647 points — less than 1% from current levels. Only 5 out of 18 expect the index to decline by year-end, and just two forecast a drop of more than 5%.
The most pessimistic are at TFS, expecting a correction of 9% (to 585 points). Societe Generale strategist Roland Kaloyan forecasts a decline of about 6%, to 600 points, warning: "The main risk, in our view, is not the absence of earnings growth, but that the recovery will be weaker than the expectations priced in." The next test for the market is second-quarter earnings: so far, 45% of companies have beaten forecasts, while 27% have reported worse-than-expected results.
My view as an analyst: The revision of forecasts by UBS and Deutsche Bank is a powerful bullish signal, confirming the fundamental strength of the European market. However, I would not rush to follow it unconditionally. The gap between the consensus forecast and UBS's ambitious targets is too wide. The market has already priced in a lot of optimism, and any disappointment in corporate earnings could trigger a correction. Investors should remain cautious and focus on asset quality rather than the overall trend.