Goldman Sachs Research forecasts “modest positive returns” for European stocks in 2026, driven by good global economic growth and falling interest rates in the US.
Our strategists expect Europe’s STOXX 600 index to generate an 8% total return this year (as of January 6). Rising corporate earnings are projected to boost the region’s stocks, writes Sharon Bell, a senior strategist in Goldman Sachs Research, in the team’s report.
“We see a positive profit trajectory, driven by good global growth, domestic fiscal / defense spend, and continued company focus on margins and returns,” Bell writes.
What might impact European stocks this year?
Bell’s team expects European stocks to get a boost from continued global economic growth in 2026. Our economists forecast global real GDP to increase by 2.9% in 2026, while the euro area economy is projected to grow 1.3%.
This growth backdrop should support higher corporate earnings, according to the European Equity Strategy team, who forecast 5% STOXX 600 earnings-per-share (EPS) growth in 2026 and 7% in 2027.
However, a weak dollar could hurt the earnings of large, international European companies this year, reducing the relative value of their sales in the US. Our foreign exchange strategists forecast that the euro will be worth 1.25 dollars in 12 months’ time, compared to 1.16 as of January 9.
The expected dollar weakness has reduced Goldman Sachs Research’s forecast for European EPS by between two and three percentage points, Bell writes.
In addition, forecasts for a drop in the price of oil have diminished the team’s expectations for energy company earnings, which make up around 5%-10% of aggregate European EPS.
Notwithstanding the drag from foreign exchange and oil, the team expects higher fiscal spending by some European governments and a focus from companies on profit margins and investor returns to help European company earnings this year.
The auto sector should also provide a boost to earnings in 2026, the team writes. Most stocks in the sector are set to see EPS growth of over 100% this year after a collapse in 2025, according to a consensus of economist estimates. And although this is a relatively small sector, the substantial increase in earnings will likely boost overall European EPS by 2-3 percentage points this year, Bell writes.
Last year, European stocks experienced some inflows from both domestic and foreign investors. That’s a change “from persistent net selling,” especially by domestic investors, from 2022-2024, Bell writes.
With that said, over a four-to-five year window, cumulative flows have only just turned positive, and they are still low compared with other regions.
Source: goldmansachs.com
