Just a month after strategists had begun spotting renewed opportunity in European equities, sentiment has quickly shifted. A growing number of analysts are now scaling back their forecasts, citing ongoing geopolitical instability and escalating trade tensions.
According to Bloomberg’s latest monthly survey of 17 strategists, nearly one-third have lowered their year-end targets for the Stoxx Europe 600 index. While the average forecast still points to an increase to 546 points by December, confidence has clearly weakened amid rising uncertainty around U.S. economic policy. UBS Group AG strategist Gerry Fowler now forecasts the index to reach 550, but only under the assumption that U.S.–China tariffs ease somewhat.
He added that expectations of resilient earnings are helping limit further downgrades, supported by fiscal stimulus measures expected to drive a cyclical recovery in 2026–2027.
Despite the ongoing concerns around tariffs, the European market is benefiting from expansionary fiscal policy and significantly lower interest rates compared to the U.S. The European Central Bank is expected to cut rates up to three times this year, potentially bringing its key rate to around 1.5% — maintaining a two-percentage-point gap versus the Federal Reserve.
European equities have performed relatively well so far in 2025, with the Stoxx 600 up 2% year-to-date, contrasting with a 9% decline in the S&P 500. However, U.S. tariffs are now at their highest level in a century, raising fears about long-term growth drag.
Barclays Plc strategist Emmanuel Cau led the most aggressive downgrade in the Bloomberg survey, slashing his year-end forecast for the Stoxx 600 from 580 to 490. He warned of a broad range of possible outcomes — from a fall to 390 in a prolonged downturn to a recovery to 530 if the trade conflict de-escalates swiftly.
Relatively speaking, Europe is seen as better positioned due to its current monetary and fiscal stance. Still, recent spikes in volatility have rekindled investor anxiety. The most bearish respondent in the survey, Stéphane Ekolo of TFS Derivatives, cut his forecast even further, predicting a 9% decline for the year — with the Stoxx 600 dropping to 470.
European earning momentum plunges as are the most negative since the covid era.
According to a recent Bank of America Corp. survey, investor optimism is clearly cooling. Only 19% of respondents expect short-term gains in European stocks, compared to 30% a month ago. Similarly, just 56% anticipate gains over the next 12 months, down from 67%. Overall, only 22% report being overweight European equities — a significant decline from 39% in the prior month. Meanwhile, 36% are underweight U.S. equities — the highest level in nearly two years.
Source: Bloomberg
