Goldman Sachs has revised up its earnings outlook for the STOXX Europe 600, lifting projected EPS growth for 2026 to 10% from a prior 5% estimate. The adjustment reflects upgrades concentrated in commodity-related companies and a smaller-than-expected drag from currency movements this year.
Target and near-term return - The bank has set a 12-month price target for the STOXX Europe 600 at 625, which it says implies about a 5% total return from current levels. That assessment comes amid market volatility since the outbreak of conflict in the Middle East in late February.
"This is a function of commodity-company upgrades and less FX-driven drag to EPS this year. Next year, we will likely see some offset as we expect energy earnings to come down in 2027," strategists led by Sharon Bell wrote in their note.
Performance, commodities and valuation mechanics - European equities are essentially flat year-to-date and remain about 4% below pre-war highs. Goldman highlights a close correlation between price moves in European equities and developments in oil and gas markets, estimating that each 1% rise in oil prices subtracts roughly 20 basis points from European equities solely through valuation compression.
The strategists commented that the market has not ignored the conflict, at least in terms of energy-price movements. "European equities have tracked closely the moves in Energy (gas and oil) and the rates markets," they wrote.
Goldman noted that Europe’s forward price-to-earnings multiple sits at 14.4 times, well above the 10.4 times trough seen during the 2022 energy crisis when TTF gas prices exceeded €300 per megawatt-hour. By contrast, gas is trading near €46 at present. The strategists flagged the persistence of relatively elevated European valuations as a notable feature - historically, similar geopolitical shocks have tended to push risk premiums markedly higher.
"It’s the resilience of European valuations which has surprised us the most," the strategists said, adding that as the bank rolls forward into next year’s earnings, the aggregate PE has moderated slightly from recent highs but remains meaningfully above the 2022 trough.
Sector divergence and earnings dynamics - Outside of the commodity sectors, Goldman’s view on earnings is less sanguine. The bank anticipates margins excluding commodities will be roughly flat this year, in contrast to consensus expectations for a 100 basis point uplift in 2026.
Consumer-facing segments have taken the hardest hits to earnings forecasts since the conflict began, with Travel & Leisure, Autos and Luxury among those registering the steepest downgrades. By comparison, Banks, Technology and Utilities have recorded forecasts that are largely flat to slightly positive.
Goldman also identified a rotation in investor preference away from quality and capital-light business models and toward capital-intensive industries such as infrastructure, energy and industrials. Its capital-intensive basket has outperformed the broader STOXX Europe 600 by roughly 3% since the conflict started and has risen about 36% since January 2025. Conversely, the bank’s GRANOLAS basket and other quality-focused strategies rank among the weakest performers year-to-date.
Macro and geopolitical risks - The strategists highlighted stagflation risk while the Strait of Hormuz remains blocked, noting that median real quarterly STOXX 600 returns tend to fall to around -1% in such episodes compared with roughly +3% during normal periods. Despite acknowledging those risks, Goldman does not make stagflation its base case.
In terms of portfolio positioning, the strategists recommended overweights in Banks, Technology and Defense.
This analysis reflects the observations and recommendations set out by Goldman Sachs strategists. It reports the bank’s forecasts, sector comments, valuation comparisons and suggested relative positioning without adding additional projections or outside interpretation.