Banks raise European stocks forecasts as peace deal calms

European stocks are getting higher year-end forecasts after a US-Iran peace deal eased risk sentiment, according to a Bloomberg strategist survey.

Several major banks raised their targets, and the latest poll of 16 respondents points to the Stoxx Europe 600 closing 2026 at 640. That level is broadly in line with recent record territory, even as many parts of the market have not fully recovered.

Strategists lift targets as risk backdrop improves

Goldman Sachs Group Inc., Barclays Plc and Societe Generale SA were among firms that increased their end-of-year expectations, the survey showed. The upgrades followed a shift in the geopolitical outlook after the US-Iran agreement.

The median estimate in the poll implies European equities can hold onto recent gains into the second half of the year. It also suggests strategists see less pressure from geopolitical risk premia that had weighed on valuations during the conflict.

Even with the index near its highs, the rebound has not been uniform. Some strategists said that unevenness is central to the bullish case, because it leaves room for catch-up moves in lagging sectors and individual names.

Uneven recovery leaves room for rotation

Beata Manthey, head of European equity strategy at Citigroup Inc., said headline performance at the index level can obscure what is happening underneath. In her view, numerous sectors and stocks are still priced below where they traded before the conflict.

That gap matters for allocation decisions. If investors believe macro and geopolitical conditions are stabilising, they may rotate into areas that have not yet repriced, rather than concentrating exposure in a narrow set of winners.

Manthey described the potential for a “second phase of recovery,” characterised by broader participation across the market. In that framework, leadership could widen beyond the segments that moved first as tensions cooled.

AI remains the key theme amid broader participation

While strategists pointed to scope for a more balanced rebound, Manthey said the artificial intelligence theme is still expected to be the main driver. She cited earnings strength and continued spending growth as factors supporting momentum.

For European markets, the interaction between rotation and AI leadership will be closely watched. A broadening rally can support index resilience, but the durability of higher targets often depends on whether top contributors continue to deliver results.

The survey’s 640 projection indicates expectations that the region can sustain record-level pricing into year-end 2026. At the same time, the dispersion in performance suggests outcomes may vary sharply across sectors as investors reassess pre-conflict valuation gaps.

Next steps for market participants will likely include tracking how quickly lagging groups recover and whether profit growth remains strong enough to justify higher targets. Strategists will also be monitoring whether the post-deal environment keeps volatility contained, allowing rotation to continue rather than reversing into defensives.