According to a Bloomberg survey, market forecasters have become the most optimistic about European stocks in eight years, placing their bets on strong corporate earnings and government spending rather than letting high energy costs and rising interest rates stand in the way.
The Stoxx Europe 600 Index is expected to close the year at 670 points, based on the median target from 16 strategists polled by Bloomberg. That implies gains of 5% from Wednesday’s close. It is the most optimistic view this month’s edition of the survey has produced since 2018.
Panmure Liberum Keeps the Bull Crown
The poll’s top pick, Panmure Liberum, kept its place as the largest bull, calling for the benchmark index to rise by 10% by year end. Deka Bank raised its target, while no firm cut its forecast. Societe Generale SA remained the most bearish, sticking to its unchanged 600 points outlook. Across the poll, the average prediction sits below the median, which stands at 654 points.
HSBC Holdings Plc strategist Duncan Toms supported the optimistic outlook. “A reversal to lower energy prices would be a welcome relief to the European stock market, but there are other potentially positive catalysts,” he said. He cited improving macro-economic data and the positive implications that holds. “A continuation of this alongside another strong earnings season in the third quarter can see the region perform well again to year-end,” he added. The strategist has stuck to a 670 target since January.
Oil Prices and the Iran Conflict
Over the last month, European stocks have faced downward pressure due to a significant rise in oil and gas costs, driven by the unresolved conflict with Iran. The Stoxx 600 has declined 2.7% since its August high. The Strait of Hormuz remains effectively shut, and renewed conflict has weighed on investor confidence.
Crude oil sits above $100 a barrel, which is feeding inflation worries and pushing central banks toward higher interest rates. The European Central Bank has grown more aggressive after raising its benchmark this month, with the swap market now pricing in three more such moves through June. The Bank of England has also moved up its own path, with four rate hikes almost fully priced in by July next year following its decision to keep borrowing costs steady Thursday.
The Factors Behind the Call
Several factors are expected to lift European stocks, even with energy headwinds still blowing.
| Factor | How It Helps Stocks |
|---|---|
| Strong earnings growth | Corporate profits |
| Wave of government spending | Fiscal support |
| Lower energy prices | Reduced inflation pressure |
| Improving macroeconomic data | Better growth prospects |
Forecasters express confidence that corporate profits and government support will surpass the harm from rising oil prices, which set off recent drops in European stocks.
Why the Optimism Holds Up
Even with oil costs staying high, wars continuing to unfold, and central banks shifting toward tighter monetary policy, the outlook remains positive for now. Strategists say the positives outweigh the negatives, even against these headwinds.
Toms laid out the trade’s case plainly: he noted the room for energy prices to fall, while also citing earnings season and economic data as grounds for expecting additional gains. The 670 target has stood firm for months now.
“A continuation of this alongside another strong earnings season in the third quarter can see the region perform well again to year-end.”
A split emerged from the survey: Panmure Liberum and others push for gains, whereas Societe Generale offers the most bearish forecast. The average falls below the median.
The Risks Remain
The survey does not erase the risks. The Iran conflict continues to roil markets, with the Strait of Hormuz effectively closed and some re-escalation hitting sentiment. Brent crude’s position above $100 a barrel means inflation pressure stays high, which in turn makes central-bank tightening more likely.
The ECB has already raised its interest rate this month, and the swap market now expects three additional moves to follow through June. Meanwhile, the Bank of England kept its own rate steady on Thursday, though it has four hikes almost fully priced in by July next year.
The pressures are genuine. Yet the poll indicates that the positives — earnings, spending, and possibly lower energy costs — outweigh the negatives. The analysts are wagering that the economy can endure the present shocks and continue expanding.
Investors face a mixed picture. The survey registers confidence, yet it also reflects a market recently battered by oil and gas prices. The route to 670 is anything but easy, and the dangers along the way are real.
Source material: “Strategists Are Most Bullish on European Stocks in Eight Years,” Yahoo Finance.
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