Goldman Sachs expects European equities to deliver modest gains in 2027, with a 9% total return forecast for the STOXX 600. Slower earnings growth and lingering economic pressures limit the upside, while lower energy prices form a key driver of the outlook.
Goldman Sachs forecasts a 9% total return for the STOXX 600 over the next 12 months. The bank expects Europe to trail U.S. and Asian indices, although the region continues to offer diversification benefits, attractive cash generation and support from foreign investor inflows.
Index targets and slower earnings growth
The bank forecasts the STOXX 600 at 670, 680 and 700 over three, six and 12 months, respectively. That implies a 5.6% price return and an 8.9% total return over the next year.
Earnings growth explains the restraint. Goldman expects European earnings growth to slow to 7% in 2027 from 18% in 2026, partly reflecting a decline in energy-sector earnings, weaker economic growth and pressure on corporate margins.
Lower energy prices support the outlook
Energy prices are a key driver of Goldman's view. Its commodity strategists expect Brent crude to moderate to $78 a barrel and European benchmark TTF gas prices to fall to €31 per megawatt-hour by the end of 2027.
The bank estimates that every 10% increase in Brent prices reduces European equity valuations by around 1%. Lower energy prices could particularly benefit cyclical stocks, consumer discretionary companies and the German DAX, while declining bond yields are expected to support rate-sensitive sectors, including real estate and utilities.
Sector and regional calls
Goldman recommends overweight positions in technology, retailers, telecoms, utilities, defence, aerospace and renewables. It downgraded banks to neutral and insurance and energy to underweight, while maintaining underweight positions in European autos and chemicals because of their exposure to Chinese competition.
On regional allocations, Goldman favours the DAX over the broader STOXX 600 and UK domestic stocks over the FTSE 100. It cites Germany's fiscal spending support and the UK's potential benefit from lower energy prices and government bond yields.
The bank also cautioned against returning to French domestic equities, citing concerns over sovereign debt and subdued economic growth.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
