J.P. Morgan on Monday increased its year-end targets for two key European equity gauges, pointing to improving corporate earnings and a more favourable geopolitical backdrop as reasons for the revision.
The firm raised its target for the STOXX 600 index to 680 from 630. That new target implies roughly a 7% upside from the index's close on Friday at 635.88 points. J.P. Morgan also lifted its year-end projection for the MSCI Eurozone index - a measure of euro-area equities - to 420 from 385.
Global markets have felt pressure from the months-long Middle East conflict, which pushed inflation and reignited concerns about further central bank rate increases. A U.S.-Iran peace deal has since helped restore some stability to markets, the brokerage said, as investors begin to unwind the conflict's impact.
"As the market continues to unwind the conflict's impact, Eurozone should stand to benefit," J.P. Morgan analysts led by Mislav Matejka wrote in a note. The analysts added that if market breadth broadens in the second half of the year, Europe could once again become a compelling story.
J.P. Morgan stressed that, while risks remain - including the possibility of renewed geopolitical escalation - the region may look attractive if markets increasingly price out the conflict's effects and if market participation widens. The bank listed several factors that could further bolster equities: a larger-than-expected drop in oil prices, declining bond yields, reductions in tariffs and a pickup in China's economic activity. It also noted that global investors currently remain underexposed to the region.
"We find that global investors don't have much risk in Europe," the brokerage said, highlighting the potential for inflows if sentiment toward the region improves and positioning lightens.
J.P. Morgan reiterated an "overweight" stance on euro zone equities, underpinned by expectations of a strong profit recovery. The brokerage forecast euro zone earnings to expand by about 20% in 2026 after a contraction last year, pointing to earnings growth as a primary driver for regional markets.
Improving growth dynamics and policy support were cited as additional elements that could sustain a rally, particularly if macro conditions stabilise and earnings continue to be revised upward. The firm emphasised that light positioning leaves scope for capital flows into the region should investor sentiment turn more favourable.
Other market participants have recently adjusted their views on Europe as well. Earlier this month, Barclays raised its STOXX 600 year-end target and abandoned a previously bearish stance, reflecting a broader reassessment of the region among some large brokers.
For investors and market watchers, the combination of expected earnings recovery, easing geopolitical risk, and scope for renewed inflows frames a cautiously optimistic case for European equities. However, J.P. Morgan and others warn that persistent or resurgent geopolitical tensions, adverse macro surprises or market fragmentation could blunt the upside.
As markets move through the second half of the year, the brokerage's upgraded targets and reiterated overweight suggest Europe could regain appeal if the conditions it outlines - earnings upgrades, lower yields and improved breadth - materialise.