UBS raised its year-end targets for the Stoxx 600 index, boosting its forecast to 690 for 2026 and 760 for 2027 as corporate earnings across Europe have shown greater resilience than previously expected. Strategists at the bank highlighted three developments that underpin the revision: continuing and strengthening AI-related earnings upgrades, ongoing positive revisions among banks, and a reduced negative impact from large defensive sectors, with a weaker euro helping the latter.
In a note, strategists Gerry Fowler and Sutanya Chedda wrote that these factors are "enough to support robust earnings growth (>10%) and a higher valuation (~16x)." The adjusted targets replace prior year-end goals of 630 for 2026 and 680 for 2027, which reflected concerns at the time about narrow market leadership and the potential for input-cost inflation tied to the Iran conflict - a stance the strategists now regard as overly cautious.
What has shifted
UBS says the most notable change is the breadth of the earnings improvement. Positive developments are no longer concentrated only in semiconductors and beneficiaries of artificial intelligence. Instead, the bank reports that luxury goods, staples, pharmaceutical companies, banks and parts of the industrial complex are all showing a more stable or improving earnings outlook. The strategists argue this widening of positive revisions makes it increasingly difficult to identify meaningful downside risk at the index level.
The bank's valuation framework, which incorporates variables such as gold prices, eurozone manufacturing orders, U.S. 10-year yields and oil prices, supports the view that the Stoxx 600 could continue to re-rate. UBS's model points to the multiple potentially pushing above 16 times in 2027.
Leadership and allocation implications
According to the strategists, leadership should remain concentrated among AI enablers, banks and parts of the industrial complex - groups that together represent roughly 40-50% of the index and continue to show the strongest earnings revision momentum. Meanwhile, former laggards such as luxury, pharma and selected defensive sectors - which make up another roughly 30% of the index - are becoming investable again as earnings expectations stop falling and valuations remain attractive.
The note singled out autos as the clearest ongoing area of caution, but also observed that autos account for only a 1.3% weight in the MSCI Europe benchmark.
Regional divergence and macro caveats
UBS pointed to a divergence between Southern and Northern Europe. Spain, Italy and Portugal are showing stronger readings on lending, retail activity and consumer resilience, whereas Germany, France and the U.K. are displaying weaker indicators. The bank cautioned that its updated outlook is "not a call for euphoria" but rather "a call for less caution," stressing that Europe's macro backdrop remains unimpressive relative to global peers with subdued growth and lingering effects from the Middle East energy shock.
Second-quarter earnings will be watched closely to determine whether the uplift in sentiment is durable. Investors are likely to focus on whether AI-related upgrades persist, whether banks continue to deliver positive revisions, and whether defensive sectors stabilize.
Bottom line
UBS's upward revision of Stoxx 600 targets reflects a broader improvement in earnings momentum across multiple sectors, a valuation model that allows for further re-rating, and a regional divergence that favors parts of Southern Europe. The bank nonetheless retains a cautious posture on the macro environment and flags upcoming corporate earnings as the next test of the durability of the improving outlook.