Thanks to its relative resilience to AI risks, improving economic conditions, favorable geopolitical developments, and strong corporate earnings, the EuroStoxx 50 has been reaching new record highs for several consecutive days. Let’s analyze the current situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- Earnings surprises are supporting the EuroStoxx 50 rally.
- Geopolitical developments are also favoring European markets.
- The ECB may keep interest rates unchanged throughout 2026.
- Long trades on the EuroStoxx 50 can be considered with targets of 6,600 and 6,800.
Monthly Fundamental Forecast for EuroStoxx 50
While US and Asian stock markets debate whether investments in AI can generate sufficient returns, the EuroStoxx 50 has posted new record highs for the fourth consecutive day. The European market’s relatively limited exposure to the AI sector makes it an attractive diversification tool, while improving economic conditions and strong corporate earnings are pushing European equities to new highs.
Stock Indices and EPS
Source: Bloomberg.
Since the start of the second-quarter earnings season, the EuroStoxx 600 has outperformed the S&P 500. European companies’ earnings have grown by 16%, with more than 50% exceeding expectations—the best result since 2023. Meanwhile, shares of companies that beat forecasts are rising by an average of 1.6 percentage points in the following session, twice the first-quarter figure.
Although the figures still trail the US market, Europe is experiencing a level of optimism rarely seen in recent years. Earnings expectations appeared overly ambitious at the start of the season, yet companies managed to surpass them. Citi views Europe as the only major region showing a meaningful improvement in risk appetite, supported by ETF inflows and a wave of positive earnings surprises.
MSCI Europe Firms Beating Forecasts and Earnings Per Share in Europe
Source: Bloomberg.
Europe’s market recovery is built on a much stronger foundation than before. Higher government spending on defense, increased investment, improving industrial activity, and a gradual manufacturing recovery add to the case for buying the EuroStoxx 50, alongside the benefits of diversification away from AI-related assets.
Geopolitical developments are also supporting European equities. Positive signals from the Middle East—including expectations from US Treasury Secretary Scott Bessent that a Washington–Iran agreement could be reached soon—are helping sentiment. Europe’s heavy dependence on energy imports means that Brent crude falling below $80 per barrel would provide a significant economic boost.
At the same time, the risk of inflation accelerating due to higher import costs is declining. This reduces pressure on the ECB to tighten monetary policy and creates an additional tailwind for the EuroStoxx 50.
The main risk is excessive optimism. According to Mizuho Bank, the US may have to accept an unfavorable agreement with Iran that fails to remove uncertainty in the Middle East and keeps oil prices elevated. However, this potential setback is unlikely to significantly weaken investor enthusiasm toward European equities.
Monthly Trading Plan for EuroStoxx 50
This scenario supports the strategy of buying the EuroStoxx 50 with the previously identified targets of 6,600 and 6,800.
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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