The most bullish on European stocks in eight years, analysts predict a new high by the end of the year.

Title context: The most bullish on European stocks in eight years, analysts predict a new high by the end of the year. Text: Strategists have issued their most optimistic September forecast for European stocks since 2018. According to a survey, the median year-end target of 16 strategists for the STOXX Europe 600 index is 670 points the most optimistic median since 2018. Strong corporate earnings growth is helping the market absorb the dual shocks of high energy prices and rising bond yields. The internal structure of this survey is equally intriguing. Panmure Liberum continues to hold the "biggest bull" position, predicting the benchmark index could rise another 10% before year-end (equivalent to about 700 points based on the September 16 closing price); Deka Bank raised its target, and no institution lowered theirs. The most bearish is France's Industrial Bank, which maintained its 600-point forecast unchanged. Notably, the survey average is only 654 points, below the median low-end outliers are dragging the average down, and the divergence between bulls and bears is not insignificant. HSBC multi-asset strategist Duncan Toms belongs to the staunch camp, and his 670-point target has not wavered since January. "Falling energy prices would be a welcome relief for European stocks, but there are other potential positive catalysts," he said, citing continuously improving macroeconomic data and their positive implications. "If this momentum continues, combined with another strong third-quarter earnings season, the region can perform well again by year-end." Headwinds: Oil prices, bond markets and "hawkish" central banks Over the past month, European stocks have indeed been under considerable pressure. The unresolved Iran war has pushed oil and gas prices higher, and the STOXX 600 has fallen 2.7% from its August peak according to Dow Jones Market Data, the index hit a record closing high of 660.51 points on August 11, briefly fell to a three-month low of 634.17 points on September 15, and the Strait of Hormuz remains effectively closed, with further escalation of the conflict continuing to weigh on sentiment. The rates side is equally worrisome. Brent crude rose above $108 intraday on September 15 before falling for two consecutive days, but still closed above $100 per barrel on September 17, with inflation anxiety unresolved. After the European Central Bank raised rates by 25 basis points on September 10, lifting the deposit rate to 2.50%, its stance turned noticeably hawkish, with swap markets expecting three more rate hikes by June next year; according to FXStreet, the interest rate swap market has priced in about 88 basis points of additional tightening, with the tightening peak occurring in September 2027. The Bank of England held steady for the sixth consecutive meeting on September 17 (maintaining 3.75%), but the market has fully priced in future rate hikes over the next year expectations for four rate hikes by July next year are almost completely priced in. On the bond market, Germany's 10-year government bond yield rose to 3.512% on the September 10 decision day (according to Tencent Finance) and fell back to 3.474% on September 17. Societe Generale strategist Roland Kaloyan laid out the risk list bluntly: "Other risks include the unwinding of crowded positions in the AI trade, the U.S. midterm elections, renewed tariff tensions, and low European natural gas inventories. Combined, these factors could push the equity risk premium higher." Atlantic China Welding Consumables,Inc. The other side: Confidence is also loosening The temperature gap between European and American strategy circles is widening. Wells Fargo and Yardeni Research both lowered their year-end targets for the S&P 500 this week: Yardeni's Ed Yardeni cut his target from 8,400 to 7,900 on Tuesday, citing rising bond yields and Middle East tensions, and raised his recession probability for the next three to six months from 20% to 30%; Wells Fargo analyst Ohsung Kwon's team lowered theirs from 7,950 to 7,700, believing the earnings cycle is in its later stage and index upside is limited. Bank of America slightly raised its target to 7,400, still the lowest on Wall Street. However, Citadel Securities' Scott Rubner said on Thursday that he is "increasingly constructive" on stocks. Fund flow signals are more subtle. According to Bank of America's fund manager survey released this week, the net percentage expecting European stocks to rise in the coming months fell to 39%, down from a net 53% in August; but the same respondents' expectations for the region's stock returns over the next 12 months rose to an average of 6.3%, with 43% of investors believing European and U.S. stock markets will perform roughly equally over the next year. The vast majority of investors cited "earnings upgrades" as the most likely reason for further gains in European stocks bullish sentiment is cooling, but the reasons for being bullish have not changed. Fundamentals: The fastest earnings growth in four years The real foundation for this optimism lies in earnings. According to Charles Schwab citing LSEG I/B/E/S data (as of September 3), STOXX 600 constituents' earnings grew 23.9% year-on-year in the second quarter of 2026, compared with 11.8% in the first quarter, far exceeding the single-digit growth of the previous two years; the market consensus forecast for full-year 2026 earnings growth has been revised up from 9.4% at the start of the year to 16.2% as of August 25. Data shows that STOXX 600 companies' earnings are expected to jump 15% in 2026, the highest in four years, and rise another 9.7% in 2027. Citi's earnings revision indicator for the region has been in positive territory for 20 consecutive weeks, the longest streak in five years. Upside potential has also received more aggressive endorsement. UBS strategists Gerry Fowler and Sutanya Chedda raised their year-end 2026 target for the index from 630 to 690 points and their 2027 target to 760 points on September 15, citing the continued broadening of AI-related earnings upgrades, bank earnings revisions remaining positive, and defensive sectors no longer dragging on the index, with valuations expected to exceed 16 times. The two emphasized that this is not a "call to cheer" but a "call to be less cautious." The valuation gap is another card bulls repeatedly cite: according to MSCI data (as of September 9-10), European stocks' forward 12-month price-to-earnings ratio is about 14.7 times with a free cash flow yield of 5.5%, while the U.S. stands at 19.6 times and 2.9%, respectively. Macro and fiscal support are also improving. The eurozone's August final inflation reading was revised down to 3.2% year-on-year; the region's and global macroeconomic backdrop remains strong, with the economic surprise index positive, manufacturing activity expanding, and fiscal stimulus led by Germany beginning to take effect. UBS also noted in the above report that credit and consumption resilience in Spain, Italy and Portugal is notably better than in Germany, France and the U.K. The market's immediate reaction provided a footnote to this optimism: on September 17, the STOXX 600 rose 0.86% to 642.60 points, the largest single-day gain since July 2 (Dow Jones Market Data), with mining stocks surging 2.1%, auto stocks up 1.7%, and the U.K.'s FTSE 100 rising 1.19%, its largest single-day gain in over two months. At the individual stock level, performance was sharply divided Spanish e-commerce company Allegro surged 9.5% after raising its full-year guidance, German industrial services provider Bilfinger plunged 21.4% after cutting its 2026 outlook for the second time this year, the largest single-day drop since its listing, and Austria's Raiffeisen Bank International fell 6% after Grizzly Research disclosed a short position. "Based on solid earnings-per-share growth, our constructive view on European stocks through mid-2027 remains unchanged, while acknowledging that risks from geopolitics and interest rates to the cyclical improvement in the macroeconomic and earnings trends are rising," summarized Beata Manthey, head of European equity strategy at Citi. This may be the common ground between bulls and bears in European stocks right now: the disagreement is about risk, the consensus is about earnings.