Goldman Sachs Raises STOXX 600 Target as Strong Earnings Support European Stocks

Goldman Sachs has increased its 12-month target for the STOXX Europe 600 Index, citing resilient corporate earnings and continued investor confidence despite ongoing geopolitical tensions in the Middle East.

The Wall Street investment bank now expects the pan-European benchmark index to reach 660 over the next 12 months. Based on the index’s recent close near 626, the new forecast implies potential upside of approximately 5.4%.

European Stocks Remain Near Record Highs

European equities have continued to demonstrate strength throughout 2026, with the STOXX 600 remaining close to record levels.

The index gained around 2.5% during May, even as investors navigated increasing uncertainty stemming from developments in the Middle East. While geopolitical tensions have weighed on market sentiment at times, they have not been enough to derail the broader upward trend in European stocks.

Goldman Sachs Upgrades Short-Term Forecasts

In addition to its 12-month outlook, Goldman Sachs also raised its shorter-term projections for the STOXX 600.

The brokerage increased its three-month target to 640 and its six-month target to 645, reflecting confidence that earnings growth and favorable market conditions can continue supporting the index in the months ahead.

The revised forecasts were outlined in a research note released on Friday.

Earnings Growth and AI Optimism Drive the Rally

According to Goldman Sachs, several key factors have fueled the strong performance of European equities.

The bank highlighted healthy nominal economic growth, improving earnings expectations within the energy sector, and resilient profit margins across much of the market.

In addition, ongoing enthusiasm surrounding artificial intelligence technologies has provided a significant boost to investor sentiment, mirroring trends seen in other global equity markets.

Goldman noted that AI-related companies and energy stocks have been among the primary drivers of the recent rally.

Inflation and Interest Rates Remain a Challenge

Despite the positive outlook, Goldman Sachs warned that several factors continue to limit valuation expansion.

Persistent inflation pressures and expectations that interest rates could remain elevated for longer are preventing stock valuations from rising even further.

While corporate earnings remain strong, investors remain cautious about the impact that higher borrowing costs and rising energy prices could have on future economic growth.

European Stocks Remain Cheaper Than US Equities

One factor supporting the bullish outlook is the relative valuation advantage of European stocks.

The STOXX 600 currently trades at a forward price-to-earnings ratio of approximately 17.55, significantly lower than the S&P 500’s forward P/E ratio of 27.94.

This valuation gap continues to attract investors seeking exposure to global equities at more attractive price levels.

Earnings Growth Expected Through 2027

Goldman Sachs forecasts that earnings per share for companies within the STOXX 600 will increase by approximately 10% in 2026, followed by a further 5% growth in 2027.

However, the bank expects earnings momentum to gradually moderate as higher energy costs begin to pressure corporate profit margins.

Even so, overall profitability is expected to remain positive across much of the European market.

International Investors Continue Favoring Europe

The report also highlighted strong international investor interest in European equities.

According to Goldman Sachs, global investors continue allocating capital to Europe due to attractive valuations and diversification benefits compared to other major markets.

Domestic investors, however, remain more cautious due to concerns surrounding weak economic growth and ongoing uncertainty across the region.

The bank also dismissed concerns about excessive equity supply, arguing that investor demand remains strong enough for the market to absorb additional stock issuance without significant disruption.

Overall, Goldman Sachs believes strong earnings growth, attractive valuations, and continued AI-driven enthusiasm should help support further gains in European equities over the coming year.