The de-escalation of the conflict in the Middle East, optimistic earnings prospects for European companies, lower exposure to Big Tech, and other factors continue to fuel the EuroStoxx 50 rally. Let’s discuss this topic and outline a trading plan.
The article covers the following subjects:
Major Takeaways
- De-escalation has lifted the EuroStoxx 50.
- The risk of further ECB rate hikes is receding.
- Corporate earnings forecasts in Europe are being revised upward.
- Long positions in the EuroStoxx 50 targeting 6,600 and 6,800 remain relevant.
Fundamental Forecast for the EuroStoxx 600 for the Quarter
Buy when the market turmoil begins to fade. European stock indices gained momentum during the de-escalation of the conflict in the Middle East in April and June. The third attempt finally proved successful! Reports of a ceasefire following the 13-day bombing campaign against Iran catalyzed the EuroStoxx 50 rally. The plunge in Brent prices not only improves the outlook for the eurozone economy but also reduces the likelihood of further ECB monetary tightening.
The return of business activity across the euro area to pre-conflict levels, easing geopolitical tensions, optimistic corporate earnings prospects, and Europe’s lower dependence on the out-of-favor technology sector compared with the United States provide compelling reasons to diversify investment portfolios in favor of European equities.
Revision Trends in European Corporate Earnings
Source: Bloomberg.
EuroStoxx 600 companies that have already reported second-quarter results posted a 12% increase in earnings. This is an excellent result for Europe. Although it is only half the level achieved by U.S. companies, investors have grown accustomed to strong earnings across the Atlantic. European equities, by contrast, are now attracting well-deserved attention. Moreover, according to JP Morgan, corporate earnings forecasts in Europe are being upgraded faster than in the United States and Japan.
Technology companies account for just 8% of the EuroStoxx 600, compared with 36% in the US market. Given investors’ concerns about the returns on massive AI investments, stretched valuations, and heavy capital spending, Europe’s lower exposure to Big Tech has given it an edge over the S&P 500.
Sector Composition of the European and US Equity Markets
Source: Bloomberg.
That does not mean companies in the Old World are free from challenges. Virtually the entire gain of more than 9% in the EuroStoxx 600 since the beginning of 2026 has been driven by technology companies. At the same time, market concentration has rarely been this high. Around 60% of the broad index’s gains have been generated by just ten companies. Meanwhile, the share of stocks that have fallen by 20% or more has doubled compared with 2025.
High market concentration is a serious cause for concern. A similar pattern can be seen in South Korea. The KOSPI, which suffers from the same problem, doubled before peaking in June, only to lose 27% during the subsequent sell-off. Although a ceasefire has been reached in the Middle East, the positions of the United States and Iran remain far apart, making it too early to expect lasting peace in the region.
Trading Plan for the EuroStoxx 600 for the Quarter
In my view, reaching the previously announced targets of 6,600 and 6,800 for the EuroStoxx 50 will be more challenging, but nothing is impossible. Pullbacks in the blue-chip index should be used as buying opportunities.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of SX5E in real time mode
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