Lower valuations, capital flows from the US to Europe, ECB-tamed inflation, and hopes for faster economic growth allow EuroStoxx 50 bulls to look ahead with optimism. Let’s discuss this and make a trading plan.
The article covers the following subjects:
Major Takeaways
- In 2025, European indices outperformed their US counterparts.
- On a P/E basis, the EuroStoxx 600 looks cheaper than the S&P 500.
- Forecasts for European equities are more modest than those for the US.
- Buying EuroStoxx 50 with a target of 6,200 remains relevant.
Annual Fundamental Outlook for EuroStoxx 50
2025 was a standout year for European equities. Stock indices delivered their strongest performance in four years, while the gap with US peers became the widest in dollar terms since 2009. This was driven by a strong euro, the ECB’s success in fighting inflation, and hopes for faster economic growth supported by Germany’s fiscal stimulus and increased EU defense spending. Will the EuroStoxx 50 rally continue in 2026?
European Equity Market Performance
Source: Bloomberg
Rotation may become the hallmark of the new year. Investors are rotating out of US technology stocks in search of alternatives — some in energy, banking, and healthcare, others abroad. The EuroStoxx 600 looks more attractively valued compared to the S&P 500, with a forward P/E of 15 versus 22 for the US benchmark.
P/E Ratio Dynamics of US and European Equity Indices
Source: Bloomberg.
However, fundamentals are not the sole reason behind the preference for European equities. Markets continue to expect an acceleration in regional economic growth. To date, Germany’s fiscal stimulus and increased EU defense spending have not had a meaningful effect. Still, they have helped make the eurozone more resilient to US tariffs. Friedrich Merz’s comments about the critical state of certain sectors of the German economy can be interpreted in two ways — not only as a sign of weakness, but also as a signal that further stimulus may be forthcoming.
Another reason to buy Europe lies in its relatively low valuations. Bloomberg’s consensus forecast expects the EuroStoxx 600 to rise by 4% in 2026, compared with 9% for the S&P 500. This figure aligns with the US equity index’s average long-term return in the 21st century and its average gain in the fourth year of a bull market.
S&P 500 Performance and Outlook
Source: Bloomberg.
However, the S&P 500 failed to post gains for a fourth consecutive year in both 2015 and 2022. If investors decide that achieving such a streak in 2026 is too challenging, portfolio rotation may accelerate — to Europe’s benefit, especially given its modest +4% forecast.
Goldman Sachs sees the EuroStoxx 600 at 625, slightly above the Bloomberg consensus, and recommends buying small-cap stocks. These companies could benefit not only from faster European GDP growth but also from a strong euro, stable ECB rates, low oil prices, and increased M&A activity.
Annual Trading Plan for EuroStoxx 50
In my view, the EuroStoxx 50 could reach the 6,200 level in 2026. Under favorable conditions — including an end to the armed conflict in Ukraine and increased fiscal stimulus in Germany — the index could rise to 6,400. The recommendation is to buy on pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of SX5E in real time mode
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