The most optimistic view on European stocks in eight years: Analysts predict another record high by the end of the year

According to Zhitong Finance APP, strategists have made their most optimistic September forecast for European stocks since 2018. According to a survey, the median year-end target for the Stoxx Europe 600 Index is 670 points—a median more optimistic than any since 2018. Strong corporate earnings growth is helping the market digest the dual blow of high energy prices and rising bond yields.

The internal structure of the survey is also worth noting. Panmure Liberum continues to hold the title of "most bullish," forecasting the benchmark index could rise another 10% before year-end (about 700 points based on the September 16 closing price); Deka Bank raised its target, and no institution lowered theirs. The most pessimistic is Société Générale, maintaining an unchanged forecast of 600 points. It's noteworthy that the average of the forecasts is only 654 points, below the median—the low outliers are dragging the average downward, indicating significant divergence between bulls and bears.

HSBC multi-asset strategist Duncan Toms belongs to the firm camp, whose 670-point target has remained unchanged since January. "A pullback in energy prices would be a welcome relief for European equities, but there are other potential positive catalysts," he said, listing the continued improvement in macroeconomic data and its positive implications. "If this momentum continues, coupled with another strong Q3 earnings season, the region could perform well again by year-end."

Headwinds: Oil Prices, Bonds, and a More Hawkish Central Bank

Over the past month, European stocks have indeed been under pressure. Uncertainty over the Iran conflict has pushed up oil and gas prices, with the Stoxx 600 index down 2.7% from its August peak—according to Dow Jones market data, the index hit a record closing high of 660.51 on August 11 and dropped to a three-month low of 634.17 points on September 15, with the Strait of Hormuz still effectively closed and recurring escalations in conflict continuing to dampen sentiment.

The interest rate side is equally concerning. Brent crude, after breaking $108 per barrel intraday on September 15, fell for two consecutive days, but still closed above $100 on September 17, with inflation anxiety persisting. On September 10, the European Central Bank raised rates by 25 basis points, increasing the deposit rate to 2.50% and clearly turning more hawkish. The swaps market expects three more hikes by June next year; according to FXStreet statistics, rate swaps have priced in around 88 basis points of additional tightening, peaking in September 2027.

The Bank of England kept rates unchanged (at 3.75%) for the sixth consecutive meeting on September 17, but the market has already priced in four rate hikes by July next year. In the bond market, the yield on Germany's 10-year government bonds rose to 3.512% on the ECB decision day (as quoted by Tencent Finance) on September 10, then eased to 3.474% on September 17.

Société Générale strategist Roland Kaloyan listed the risks plainly: "Other risks include unwinding of crowded positions in AI trades, the US midterm elections, renewed tariff tensions, and Europe's low natural gas inventories. The combination of these factors could drive risk premiums for stocks even higher."

Across the Atlantic: Confidence Also Waning

The sentiment gap between European and US strategists is widening. Wells Fargo and Yardeni Research both cut their year-end targets for the S&P 500 this week: On Tuesday, Yardeni’s Ed Yardeni cut his target from 8,400 to 7,900, citing rising bond yields and Middle East tensions, and raised the probability of a recession in the next three to six months from 20% to 30%. The Wells Fargo research team led by Ohsung Kwon lowered their target from 7,950 to 7,700, arguing that the earnings cycle is in its later stages and upside potential is limited. Bank of America lifted its forecast slightly to 7,400, still Wall Street’s lowest, but Citadel Securities' Scott Rubner said Thursday he was “increasingly constructive” on equities.

Market liquidity signals are more subtle. According to this week's Bank of America fund manager survey, the net percentage expecting European stocks to rise over the coming months fell to 39%, from a net 53% in August; however, the same group expects the region's equities to deliver an average return of 6.3% over the next 12 months, with 43% of investors believing that European and US stocks will perform similarly over the coming year. The vast majority of investors cite "earnings upgrades" as the main reason for further gains in European stocks—bullish sentiment has cooled, but the bullish thesis remains unchanged.

Foundation: Fastest Earnings Growth in Four Years

The real foundation of this optimism lies in earnings. According to Schwab citing LSEG I/B/E/S data (through September 3), the Q2 2026 earnings of Stoxx 600 constituents are expected to grow by 23.9% year-over-year, compared to 11.8% in Q1, far exceeding single-digit growth over the previous two years; the consensus estimate for full-year 2026 earnings growth has been revised up from 9.4% at the beginning of the year to 16.2% as of August 25. Data shows profits for Stoxx 600 companies are expected to jump 15% in 2026, the highest in four years, with another 9.7% gain in 2027. Citi’s earnings revision index for the region has been in positive territory for 20 straight weeks, the longest positive streak in five years.

There is also aggressive backing for further upside. UBS strategists Gerry Fowler and Sutanya Chedda on September 15 raised their target for the index to 690 by end-2026 from 630, and to 760 for 2027, citing persistent earnings upgrades driven by AI, continued positive bank earnings revisions, defensive sectors no longer dragging on the index, and upside for valuations above 16 times. They stress this is not a "call for exuberance," but a "call to reduce caution."

The valuation gap is another card repeatedly played by the bulls: according to MSCI data (as of September 9-10), the forward P/E for European stocks is about 14.7 times with a free cash flow yield of 5.5%, while for the US it is 19.6 times and 2.9%, respectively.

Macro and fiscal settings are also improving. The final August inflation print for the eurozone was revised down to 3.2% year-on-year; the macro environment in the region and globally remains robust, with the economic surprise index in positive territory, manufacturing activity expanding, and fiscal stimulus—led by Germany—starting to kick in. UBS also noted in its report that credit and consumer resilience in Spain, Italy, and Portugal is clearly better than in Germany, France, or the UK.

The market's immediate reaction gave credence to this optimism: On September 17, the Stoxx 600 rose 0.86% to 642.60 points, the largest daily gain since July 2 (according to Dow Jones market data), with mining stocks up 2.1%, autos up 1.7%, and the UK's FTSE 100 up 1.19%, the biggest one-day gain in over two months. Individual stocks showed a mixed picture—Spanish e-commerce company Allegro surged 9.5% after raising its annual guidance, German industrial services provider Bilfinger plunged 21.4% after its second cut to 2026 guidance this year, the largest daily decline since listing, and Austria’s Raiffeisen Bank International fell 6% after Grizzly Research disclosed a short position.

"Based on robust EPS growth, our constructive outlook on European equities through mid-2027 remains unchanged, while acknowledging that rising geopolitical and rate risks are boosting the cyclical risks to macro and earnings trends," summarized Citi head of European equity strategy Beata Manthey. This may well represent the common ground between bulls and bears in Europe's current equity market: the disagreement is about risk, the consensus is about earnings.