Citi and Goldman expect European equities to rise. What will make it happen?

Trade wars and geopolitical turmoil will slow the rally in European stocks, but will not completely prevent it, say Wall Street analysts and strategists. They hope for the effect of lower interest rates and increased budget spending and admit that the European market will soon be able to outperform the U.S. market.

According to the forecast of 19 strategists surveyed by Bloomberg, the Stoxx Europe 600 index will reach about 557 points by the end of the year: this is almost 4% above the closing level on Thursday, June 19. That would put investors' total return for 2025 at about 10%. Monetary easing in Europe and increased government spending will give the region's equities the boost they need to overcome risks from trade duties and escalating international tensions, the agency wrote.

Most strategists had to revise their cautious forecasts made in January amid a rally in the European market. Doubts about so-called «American exceptionalism,» Europe's improving economic performance and wide interest rate differentials have spurred bets on the region, according to Bloomberg. 

«Фондовые рынки оказались на удивление устойчивыми, несмотря на множество рисков», — заявила стратег Citigroup Беата Манти. She said global stock market valuations were based on a relatively average level of geo-economic risk ahead of an escalation in the Israel-Iran conflict. This may be a concern from a short-term perspective, but in the longer term there are many structural factors supporting European equities, Manti added.

Bank of America strategists, led by Sebastian Redler, have raised their 2025 target for the European stock market following the publication of results of a survey of fund managers. They now expect the Stoxx 600 to reach 530 points by the end of the year: still below current levels. While the outlook remains relatively negative, BofA noted an improvement in global PMIs (business activity in manufacturing or services sectors) thanks to a truce between the U.S. and China over duties, Bloomberg reports.

According to the opinion of Deutsche Bank AG strategists led by Maximilian Uhler, Trump's duties will prove to be a bo bigger burden for U.S. companies than for European companies. Earnings momentum and valuations are more favorable in Europe, although political uncertainty remains a challenge, they said. Fiscal policy and interest rate outlooks also favor Europe, and a potential cease-fire between Ukraine and Russia would be an additional boost, they said.

«Once there is more clarity on US duties, One Big Beautiful Bill (the US budget bill promoted by Donald Trump. - Oninvest), the German budget and support package, and NATO spending, markets could start to rise again by late summer. В среднесрочной перспективе европейские акции могут снова начать опережать американские», — сказала команда Deutsche Bank. 

The proportion of investors who expect European equities to rise over the next 12 months has returned to a February high of 75%, according to a BofA survey conducted in June before tensions escalated in the Middle East. And 34% of portfolio managers said their share of European equities is above their funds' benchmark levels - close to a four-year high. The proportion of respondents who view the outlook for U.S. stocks negatively reached a near two-year high. 

«We believe the diversification theme should be developed further. In terms of total returns, European equities look more compelling, especially given that portfolios were initially heavily focused on U.S. stocks,» said Goldman Sachs Group Inc partner Peter Oppenheimer. 

In parallel with the growth of stocks, the euro is strengthening its position on the global market of currency options tightening. About 15%-30% of contracts pegged to the dollar against major currencies have been switched to euro settlement, according to a study by Depository Trust & Clearing Corporation.