"It's getting harder and harder to find reasons to be bearish! UBS takes the lead in turning around, with many major banks simultaneously raising their expectations for European stocks"

A recent survey shows that as the profitability growth of European companies continues to improve, and the market generally believes that the current uptrend can withstand the recent political turmoil involving GEO Group Inc, major investment bank strategists' optimism towards the European stock market is continuously increasing. In the survey conducted in July, UBS Group AG emerged as the most aggressive institution in terms of bullish sentiment, with the bank predicting an 8% increase in the Stoxx 600 index by the end of the year after raising its benchmark index target. Bank of America Corp, Deutsche Bank Aktiengesellschaft, and Kepler-Cheuvreux also raised their expectations accordingly. The average forecast of the 18 strategists interviewed predicts that the index will reach 647 points by the end of 2026. While this level is less than 1% higher than the current level, bearish voices have significantly decreased, with only 5 respondents predicting a decline. "Currently, the upside risk is significantly greater than the downside risk," said Greg Foulger, a strategist at UBS Group AG. He admitted that his previous views were "too cautious" and raised his target to 690 points. Foulger pointed out that bottom-up evidence suggests that negative catalysts are becoming "increasingly hard to find" in sectors such as healthcare, essential consumer goods, and luxury goods. Meanwhile, the list of themes with positive revision potential is lengthening, including AI-enabled companies, banks, and industrial sectors. This month, European stock markets hit new all-time highs again, as concerns over the Iran conflict subsided following the April ceasefire agreement, leading investors to increase their exposure to Europe once again. This uptrend has so far withstood the test of renewed tension, despite a slight rise in oil prices, which are still about $40 lower than the intraday high in April. From an optimistic perspective, the global macroeconomic environment is improving, large-scale fiscal stimulus in Europe, combined with the favorable impact of AI investment and implementation, have boosted market sentiment. Citigroup strategists indicate that their European (excluding the UK) earnings revision index has soared to a five-year high, with 80% of sectors currently in a net upward revision range. "We continue to look favorably on the prospects for the European stock market over the next 12 months and are encouraged by the recent positive changes in European earnings revisions," said Citigroup's European stock strategy director, Beatrice Mantegazza. "The magnitude and breadth of this uptrend are significant, and the timing is intriguing." In this survey, the forecast range of various institutions has expanded, but only two strategists predicted a decline of more than 5%. TFS remains the most pessimistic, expecting a 9% decline to 585 points, followed closely by Industrial Bank of France, which expects a decline of about 6%. "We expect the Stoxx 600 index to experience a slight decline by the end of the year, with a target of 600 points, primarily reflecting our more conservative profit outlook," said Roland Carolan, Head of European Equities Strategy at BNP Paribas. "We believe that the main risk is not a lack of profit growth, but rather that the recovery may not reach the level already priced in by the market." He noted that market expectations are already high, with the best performance concentrated in AI and energy sectors. Carolan believes that macroeconomic risks to the stock market should not be overlooked, mentioning factors such as the fragile situation in the Middle East, the U.S. midterm elections, tariff risks, and rising bond yields. Senior stock strategist Laurent Duyet stated, "The historical high of the Stoxx 600 index masks the fact that institutional participation has weakened and trading volume is lower than before the Middle East conflict, with institutional investors turning net sellers. The uptrend is narrow, mainly relying on financial and AI stocks, with half of the sectors underperforming the broader market. If corporate profit downgrades expand and the positive impact of energy diminishes, this uptrend is likely to lose momentum." However, despite the conflict, profit expectations for Europe continue to be consistently revised upwards, with earnings per share growth forecasted at 14% in 2026 and 10% in 2027. The just-started second-quarter earnings season has seen a plethora of cases of "better-than-expected and revised guidance", including the largest European company by market value, ASML Holding NV ADR (ASML.US). So far, over 45% of companies have outperformed expectations, with only 27% falling short. Profit growth is at a rate of 11.6% year-on-year, in line with market consensus. According to a recent survey of fund managers by Bank of America Corp, European investors have shown signs of returning to a bullish stance after turning more cautious last month, and global asset allocators have started to "reconsider" the region. 37% of European investors expect the economy to experience a "Goldilocks" scenario in the next three months - with steady growth and falling inflation - marking the first time this view has become mainstream market sentiment since October 2024. Bank of America Corp strategists, including Paulina Steszynska, stated that 54% of investors expect stock markets in the region to rise in the coming months, a significant shift from the 4% of investors who predicted a market decline in June. "Valuations remain attractive, earnings resilience is a key support against rising interest rates, and provide fundamental support for style diffusion, although the direction of oil prices remains an uncertain factor," said Emmanuel Kao, strategist at Barclays PLC Sponsored ADR.