Goldman Sachs has lifted its 12-month STOXX 600 target to 660 points, up from prior levels, implying roughly 6% gains from current trading around 625. The upgrade isn't a gut feeling - the bank points to a recovering earnings cycle, improving macro conditions, and a meaningful rotation in investor sentiment toward European equities. EPS growth estimates of 5% in 2026 and 7% in 2027 suggest the continent's corporate sector is finally finding its footing.
Why now: the profit cycle is turning
Analysts led by Sharon Bell estimate that, when converted to dollars, European earnings will grow 11% in 2026 and 13% in 2027 - a pace that matches projections for the $^GSPC S&P 500 index over the same period. This parallel is significant for investors: the long-term premium valuation of US equities has historically been justified in part by faster earnings growth, which is now no longer a structural advantage for the US.
The most significant contribution has come from the automotive sector. After the earnings collapse in 2025, most companies in the segment should see EPS growth in excess of 100%, with the sector contributing 2-3 percentage points to overall index EPS growth. This istypically a cyclical recovery where a low comparative base amplifies the statistical impact.
Valuations are neither cheap nor overstretched
The $^STOXX STOXX 600 Index is currently trading at15.9 times 2026 earnings estimates, which corresponds to the 71st percentile of its historical range. European equities are therefore not historically cheap even within their own asset class, yet the bank argues that the risk of further appreciation in valuation multiples outweighs the risk of compression.
This is due to the persistent valuation discount to the US: the P/E ratio of the STOXX 600 index is around 19, while the S&P 500 is trading at 32 times earnings. This historically unprecedented difference creates room for a gradual repricing of European assets, especially if earnings convergence continues as projected.
Sectors and styles: where the bank sees opportunities
Goldman Sachs'$GS recommendation favours cyclical segments and specific sectors:
Financial services upgraded to "overweight" from its original "neutral" position
Basic materials upgraded to "neutral" from "underweight"
Small capitalization identified as structurally advantageous for 2026
Telecom and retail identified as segments with above-average stock selection potential
The reason for these preferences is the unusually low correlations between European stocks. Low correlation increases the value of selective picking - portfolios composed of specific titles can outperform passive index strategies in such an environment.
Turnaround after three years of outflows
One of the more overlooked data points in the review is the change in investment flows. Between 2022 and 2024, the European equity market experienced persistently negative flows, driven primarily by domestic investors. In 2025, this trend reversed for the first time - flows moved into positive territory, although they remain low in absolute terms.
US interest in global diversification is growing in parallel: investors in the United States increasingly see Europe as a region of relative value, especially in the context of high valuations of domestic assets. It is the combination of investors' low starting position and rising demand that creates the conditions under which flows can accelerate price movements even without a dramatic improvement in fundamentals.
Foreign exchange risk
The Bank also points to structural risk that may dampen part of the earnings recovery. Goldman Sachs' foreign exchange team estimates the euro at $1.25 in twelve months, up from $1.16 at the start of the year. A stronger euro reduces the relative value of revenue that large European corporations generate in the US, and this effect has already been factored into the 2-3 percentage point reduction in the European EPS estimate.
For investors, this means that large international exporters - automakers, luxury goods, industrial conglomerates - carry currency risk that may mitigate operational improvements. Conversely, firms with predominantly domestic European exposure are immune to the euro's appreciation and can benefit from the improved macro environment without this side effect.
Global growth as support
Goldman Sachs economists forecast global real GDP growth of 2.9% in 2026, with the eurozone expected to expand by 1.3%. These numbers are not impressive in absolute terms, but in the context of recent recession and energy crisis concerns, they represent a stabilization that has historically been sufficient to sustain the profit cycle. In addition, falling interest rates in the US are reducing the opportunity cost of holding riskier assets, which structurally supports a shift of capital towards equities.