"Diversified allocation + growth resilience" is not afraid of geopolitical risks! Goldman Sachs and HSBC bet on the long-term bull market in European stocks.

According to a survey conducted by an institution, European stock markets are expected to overcome the threats posed by the US-Europe trade war and geopolitical tensions, provided that the European economic outlook can provide strong support to European stock markets and attract larger amounts of US funds. The consensus among Wall Street strategists shows that the benchmark stock index for European stock markets - the Stoxx Europe 600 Index - is expected to rise by about 4% by the end of 2026, meaning it will increase from its closing level on Wednesday to 626 points. Wall Street financial giants Goldman Sachs and HSBC have continued to raise their target points for European stock markets since the last Bloomberg Intelligence survey for analysts in December last year. Despite the high valuations and geopolitical risks faced by European stock markets after a strong rally in 2025, these two giants remain optimistic about the investment prospects for European stock markets. Goldman Sachs and HSBC's bullish confidence is based on the resilience and profit growth of the European economy, loose monetary policies, and faster fiscal spending. HSBC is now the strongest bullish force in the European stock market, having raised the target for the Stoxx 600 index from 640 points to 670 points, indicating a potential upside of about 11% for the remaining time this year. Among the 18 Wall Street strategists surveyed, only three expect a potential downside of about 4% or more: TFS Derivatives, Bank of America, and Societe Generale. As shown in the chart above, Wall Street strategists generally expect further upside for European stock markets in 2026; the median forecast shows that the Stoxx 600 Index will rise by 4%, leaving few short positions. "With the comprehensive promotion of infrastructure stimulus policies in AI and defense military industries, Europe's growth acceleration is coming," Gerry Fowler, head of European stock strategies at UBS, said. "This is a very good time as valuations are about to rise to our target level, and we expect the upside potential of the Stoxx 600 to reach 650, mainly driven by profit growth." Fowler and his team believe that the stronger economic growth in Europe and higher bond yields favor cyclical value stocks in the European stock market, where profit expansion can significantly boost investment returns. UBS's analyst team prefers financials, utilities, transport, retail, medical equipment, and tech hardware stocks. They are cautious about sectors such as European autos, chemicals, food and beverages, tobacco, and home products, mainly due to monetary policies and significant pressures from ongoing tariffs. The Stoxx 600 Index of European stock markets has already risen by nearly 3% this year, following a 17% increase in 2025, maintaining a strong rally for the past three years. Key themes of European stocks continue to be semiconductors, defense industries, and mining companies, leading the European market, while consumer stocks lag behind the broader European markets. After US President Trump's aggressive tariff comments reappeared, European stock markets briefly retreated. However, after Trump shortly thereafter indicated that further tariffs on European countries would be avoided and pointed to the forthcoming Greenland framework agreement, the market quickly resumed its upward trend. The European economy can rely on major fiscal supports, including over 2 trillion euros (approximately $2.3 trillion) in investments for AI-utilized grids and clean energy, as well as Germany's budget surplus large infrastructure fund of up to 500 billion euros and increasing commitments to defense spending. However, as the overall valuation of European stock markets is nearing the highest level in four years, and Wall Street analysts forecast that overall corporate profit growth in European stock markets this year will be about 10%, there is a relatively high prospect of negative surprises. "After a strong rebound in December and early January, the Stoxx 600 index is approaching the upper end of our predicted target range for 2026," said Roland Kaloyan, senior strategist at Societe Generale in France. His target point is only 580, meaning there is about 4% downside from Wednesday's closing level. "Currently, trading in the European stock market is around a forward P/E ratio of 15, which also means that the European continent is expected to have double-digit earnings growth this year. In our view, considering the macroeconomic background, this target is too high, and some market segments - especially those with a significant weight in more cyclical areas - may need to adjust to this new investment environment to adapt to slower growth realities." This senior strategist said. As shown in the chart above, the strong increase in European stock markets since 2025 is mainly due to multiple expansion, and profit expectations are now taking over, although the growth is relatively slow. Investors focusing on the Stoxx Europe 600 index and the S&P 500 index have been chasing the upward trend for four consecutive years. Large bank stocks and defense contractors have driven most of the gains in the European stock market throughout 2025, while in contrast, although US defense and bank stocks have also shown gains, these stocks have contributed very little to the overall US market gains. The continued strength of large tech stocks such as Nvidia, Microsoft, and Google has been the core logic behind the multiple historical highs set by the US stock market since 2023 - with the technology sector having a much smaller share in the European stock market. According to a research report by Goldman Sachs, global funds are still underweight in the allocation of European stock markets, as 2025 saw a year of tentative return of buying power after continuous net sales from 2022 to 2024. "Given that the US market is both expensive and highly concentrated on overvalued tech giants in terms of risk exposure, we advocate for diversified capital allocation." Goldman Sachs strategists wrote in a report. They stated that investors based in the US are still concerned about the risk exposure from a weak US dollar and want to explore alternative sources of stock value growth in other parts of the world. Investors have shown a strong bullish sentiment towards the European stock market since the beginning of the year. A survey of European fund managers by Bank of America shows that 95% of respondents expect European stock markets to rise in the next 12 months, setting a new record, surpassing the 92% ratio from the previous month. The survey shows that although geopolitics has become the biggest tail risk for European stocks, cash levels have dropped to the lowest level in 12 years. "European stock market valuations are high, but historically, these valuations are unlikely to reach their upper limit as long as the profit backdrop remains supportive. The Swiss market is a clear exception, often experiencing stable or negative returns on investment when its forward P/E ratio exceeds 18 times. In contrast, the FTSE 100 index in the UK still provides valuation support and may offer very favorable 1-year and 3-year investment returns, particularly if financial conditions relax." Laurent Douillet, senior stock strategist at Bloomberg Intelligence, said in a research report. Since last year, the region has benefited from economic growth rebound and asset diversification trends from the US market, which has also fueled the rally in emerging market stock markets since the end of 2025, a trend expected to continue this year. Goldman Sachs strategists have substantially raised their target for the European Stoxx 600 index to 625 this month, based on global economic growth expectations, and particularly favor banks, tech, and defense industries. "Through conversations with our US clients, we found that they have a greater interest in global diversified allocations, and they are particularly bullish on European value stocks." According to the latest views of Goldman Sachs strategists, after outperforming US stocks in 2025, European stock markets are expected to receive a strong boost this year as investors seek further diversification from the structure of the US market, which is highly concentrated on overvalued tech stocks. "The 'American exceptionalism' discourse that has dominated the market long-term has reached its peak and started to retreat, with global investors increasingly focusing on non-US stock markets, especially European stock markets."