UBS's global research team issued a report on Friday, significantly raising its outlook for European equities. The firm increased its year-end 2026 target for the STOXX 600 index to 690 points from 630 points and set a year-end 2027 target of 760 points. This implies a potential upside of roughly 19% for the index over the next 18 months.
The strategists highlighted that corporate earnings resilience continues to surpass expectations, and the improvement is broadening across more sectors. Three key developments underpin this upgraded view: upward earnings revisions related to artificial intelligence remain strong; the banking sector continues to see positive revisions; and large defensive sectors are no longer dragging on the index's performance amid a weaker euro. These factors are seen as sufficient to support more than 10% earnings growth and a higher valuation level of around 16 times.
The most notable change is the breadth of the market improvement. Positive signals are no longer confined to semiconductor and AI beneficiaries. Sectors such as luxury goods, consumer staples, pharmaceuticals, banking, and industrials are all showing more stable or improving earnings outlooks. The strategists noted that this makes it increasingly difficult to identify significant downside risks at the index level.
UBS believes market leadership will remain concentrated in AI infrastructure providers, the banking sector, and certain industrial areas, which together account for approximately 40% to 50% of the index's weighting. Concurrently, previously underperforming sectors like luxury goods, pharmaceuticals, and some defensive areas are regaining investment appeal, collectively representing about 30% of the index's weight.
The firm emphasized that this outlook "is not a call for exuberance" but rather "a call to reduce excessive caution." It pointed out that Europe's macroeconomic backdrop remains unremarkable by global standards, with modest economic growth, and the impact of energy shocks from the Middle East has not fully dissipated. The upcoming second-quarter earnings season will help test whether the recent improvement in sentiment is sustainable.