Goldman Sachs Lifts STOXX 600 Target to 695: The Bull Case and Key Risks for European Stocks

The new STOXX 600 target of 695 implies about 5.5% price upside from the index's current level .

Six Key Drivers of the Bullish Call

1. Strongest earnings season since 2022. STOXX 600 companies are on track for roughly 22% year-on-year earnings growth in Q2 2026, the strongest since 2022 . Goldman lifted its 2026 EPS growth forecast for European stocks to 15%, pointing to resilient corporate margins .

2. Resilient economic backdrop. Goldman projects euro-area GDP growth of 0.8% (Q4/Q4) in 2026, supported by Germany's fiscal expansion and generally sturdy activity data .

3. Relative valuation discount. European stocks still trade at a discount to US peers. However, Goldman's strategist Sharon Bell noted that while she raised targets, she still does not expect Europe to outperform the S&P 500 .

4. Shareholder returns and M&A momentum. The bank flagged building M&A momentum as a potential additional catalyst for European equities .

5. Energy sector contribution. Despite energy supply concerns, the STOXX 600 has benefited from substantial profits in energy and materials sectors .

6. Currency and interest rate support. Falling interest rates and a broadly supportive global growth environment underpin the positive outlook .

The Top Risks That Could Derail the Rally

Prolonged energy shock (the top risk). Europe's dependence on imported energy makes it acutely vulnerable to supply disruptions, especially amid the ongoing Middle East conflict . Goldman's base case assumes Persian Gulf exports normalize to pre-war levels by end of July 2026, but any delay would be a material negative . The bank's commodities team estimates that each 1% rise in oil prices takes about 0.5% off European earnings .

Inflation stickiness. Euro-area core inflation is projected to peak at 2.7% YoY in early 2027, reflecting energy price passthrough, before declining to 2.0% by end-2028 . If energy prices stay elevated, inflation could prove more persistent, squeezing consumer spending and corporate margins.

Monetary policy tightening. Goldman's research forecasts two ECB rate hikes in June and September 2026 (to combat energy-driven inflation), before cuts resume in 2027 . This tightening cycle could weigh on growth and equity valuations.

Slowing GDP growth. Goldman Sachs Asset Management expects real GDP growth to slow in the second half of 2026 as high energy prices weigh on consumption and investment, especially in Europe .

Subdued consumer confidence. Persistent energy costs and geopolitical uncertainty are keeping consumer sentiment weak across the euro area .

Sector-specific concerns. While energy and materials have bolstered the index, other sectors — particularly those exposed to consumer discretionary spending — remain vulnerable. The bank has also maintained an Underweight stance on European equities relative to global peers .

Geopolitical and tariff risks. Earlier in the year (April 2025), Goldman had cut its STOXX 600 target to 570 on Trump tariff fears . While those concerns have receded, trade policy uncertainty remains a tail risk.

Market pricing ahead of fundamentals. Goldman's asset management team noted that markets have "run ahead of the economy" in many ways, warning of "wide tails and clusters of volatility" ahead .

In summary, Goldman's latest upgrade is earnings-driven and supported by a still-favorable macro backdrop, but the bank repeatedly flags that a prolonged energy shock, combined with ECB tightening and slowing growth, poses the most serious threat to the rally's durability.