Strategists’ Bullishness on European Stocks Hits Eight-Year High

A latest market survey shows that institutional strategists’ bullish sentiment toward European stocks in September has surged to an eight-year peak since 2018. Robust corporate earnings are expected to offset the dual pressures from soaring energy prices and rising bond yields, serving as a core pillar supporting European equity markets.

The survey, covering 16 market strategists, indicates that the Stoxx Europe 600 Index is projected to close at 670 points for the full year, representing a 5% upside from Wednesday’s closing level. This median forecast marks the most optimistic September survey reading since 2018.

Strategists widely believe that solid corporate earnings growth and increased government spending will effectively counteract the negative market impacts of spiking oil prices. European stocks have experienced a phase of pullback recently. Over the past month, European equities have come under pressure amid soaring global oil and gas prices driven by ongoing geopolitical tensions in Iran, with the Stoxx Europe 600 Index declining 2.7% from its August high. The Strait of Hormuz remains effectively restricted for shipping, and the risk of further escalation in regional conflicts continues to dampen market risk sentiment.

Roland Kaloyan, strategist at Société Générale, warned of multiple potential risks facing European stocks, including unwinding crowded AI trading positions, uncertainties surrounding the US midterm elections, renewed escalations in trade tariff tensions, and price volatility stemming from low natural gas inventories in Europe. The combination of these factors could further push up equity risk premiums and cap market rebounds.

Notably, there is a divergence in short-term sentiment between fund managers and strategists. A survey released by Bank of America earlier this week shows that short-term bullish sentiment among European asset managers has cooled. Currently, only 39% of European fund managers expect European stocks to rise in the coming months, down sharply from 53% in August.

Nevertheless, institutional confidence remains strong over the medium to long term. Surveyed fund managers expect European stocks to deliver an average return of 6.3% over the next 12 months, while 43% of investors believe European and US stocks will deliver similar performance in the same period. The vast majority of investors agree that upward revisions to corporate earnings expectations will be the key driver of further gains in European equities.

Overall, although European stocks have faced heightened volatility in September due to surging oil prices, hawkish central bank monetary policies and seasonal factors, market sentiment toward Europe’s medium and long-term economic outlook remains upbeat. The market is underpinned by strong corporate earnings momentum, a solid global macro backdrop, improving economic data and expanding manufacturing activity. Meanwhile, fiscal stimulus policies across Europe, particularly in Germany, have been rolled out and begun to generate positive economic effects.

Analysts continue to upgrade earnings forecasts for European corporations. Citi’s European Earnings Revision Index has remained positive for 20 consecutive weeks, marking the longest positive streak in five years. According to Bloomberg-compiled data, earnings of Stoxx Europe 600 constituent companies are expected to grow 15% in 2026, the highest rate in four years, followed by a further 9.7% growth in 2027. Sustained earnings recovery will serve as the fundamental driver of the long-term uptrend in European stocks.

[Disclaimer] Forex trading involves risk; please invest with caution. This content is for informational purposes and objective analysis only, and does not constitute any investment advice, basis for buying/selling, or guarantee of returns. Investors should make independent decisions based on their own financial situation and risk tolerance, and bear their own investment risks.