The STOXX 600 is forecast to close 2026 at 670 points, a record high that would extend its yearly gain past 13%, according to a Reuters poll. Strong corporate earnings support the outlook, but tighter ECB policy and energy-linked inflation risks keep strategists cautious.
The pan-European STOXX 600 is expected to end the year at 670 points, roughly 2% above current levels, the median estimate from a Reuters poll conducted August 12 to 26 shows. That level would mark a record high for the index and push its 2026 gain past 13%, building on an almost 17% rise in 2025.
Earnings growth outpaces the macro narrative
European companies posted robust second-quarter results, with earnings rising 24.1% from a year earlier, according to LSEG I/B/E/S data — the strongest quarterly growth since the third quarter of 2022. Excluding the post-pandemic recovery period, the second quarter recorded the fastest earnings growth in more than a decade.
Duncan Toms, multi-asset strategist at HSBC, says earnings have proven more resilient than the macro narrative suggests and expects European stocks to tactically outperform in the coming months. Valuations have climbed alongside earnings: the STOXX 600 now trades at about 14.6 times forward 12-month earnings, a 26% discount to U.S. equities, much narrower than the record 41% gap seen in November 2024.
ECB tightening and energy risks temper optimism
Even so, investors face several risks, including tighter European Central Bank policy and further energy supply disruptions linked to conflicts in the Middle East and Ukraine. Money markets expect the ECB to raise its deposit rate to 2.5% next month as policymakers try to keep inflation expectations from becoming entrenched. They also assign more than a 25% chance of rates reaching 3.0% by mid-2027.
The Iran war has disrupted energy supplies and pushed up prices for crude oil, natural gas and refined products. As a result, the benchmark Dutch front-month gas contract at the TTF hub rose this week to its highest level since the Iran-war-driven spike in March, raising concerns about higher household energy bills and manufacturing costs.
Investors are also watching the euro, which has strengthened amid concerns that U.S. Treasury efforts to contain long-term bond yields could weaken the dollar. A stronger euro is typically a headwind for European companies that generate a large share of revenue outside the euro zone. According to Reuters: "Caution is warranted," said Marco Vailati, head of research and investments at Cassa Lombarda.
Source: Investing.com
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