Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- UBS raised its Euro Stoxx 50 target to 6,400 by June 2026 and 6,600 by December 2026 from a current level of 5,587, forecasting a recovery in Eurozone corporate earnings after three consecutive years of stagnation.
The brokerage forecasts Eurozone earnings growth of 7% in 2026 and 18% in 2027, driven by a pickup in manufacturing activity, contained core inflation, greater clarity on trade tariffs, and supportive global monetary and fiscal policy.
UBS rated Eurozone equities, specifically the Euro Stoxx 50, as "Attractive" in its global asset class preference framework.
The brokerage identified three forces shaping European equities at the start of 2026: a stronger cyclical outlook, with manufacturing PMIs reaching multi-year highs and a solid fourth-quarter earnings season; fears of AI-driven disruption, which triggered a rotation from digital businesses to physical sectors; and heightened Middle East tensions raising concerns over energy security.
On the energy risk, UBS drew a distinction from the 2022 Russia-Ukraine shock, when Russian gas accounted for 35-40% of EU gas consumption.
The Middle East region accounts for only 4% of EU gas consumption, and unlike in 2022, when central banks were pivoting to aggressive rate hikes in response to post-pandemic inflation, UBS expects central banks to "look through what appears to be a transitory energy supply shock."
"Disruptions in the Middle East are expected to eventually come back," the brokerage said, adding that European consumers carry a high savings rate, businesses have grown more energy-efficient since 2022, and governments retain tools to support households, citing Germany’s energy cost support within its current budget.
UBS’s sector preferences within the region include IT, industrials, real estate, and Germany, alongside its "European Leaders" theme, which targets companies positioned to benefit from global trends and structural shifts.
The brokerage reduced banks to “neutral,” citing more balanced risk-reward after strong recent performance and early signs of slowing earnings upgrades.
In an upside scenario, UBS placed the Euro Stoxx 50 December 2026 target at 7,100, contingent on faster European growth driven by German fiscal policy, EU defense spending, a Russia-Ukraine peace deal that eases gas prices, further interest rate cuts, or structural reforms including progress on the EU savings and investments union.
A narrowing of Europe’s valuation gap with U.S. equities through diversification by U.S. and Asian capital was also cited.
The downside scenario carries a December 2026 target of 4,400, with risks including extended energy disruption slowing economic growth and delaying U.S. rate cuts, disappointing AI investment, re-escalation of U.S.-EU trade tensions, rising Chinese competition, or a return of political uncertainty in Europe.