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Investing.com -- J.P. Morgan upgraded its view on euro zone equities to “overweight,” saying the region’s “risk-reward is turning for the better” after seven months of sideways trading and improved valuations.
The move marks a shift from the bank’s earlier cautious stance, with analysts pointing to easing inflation, potential policy support, and an uptick in fiscal spending as catalysts for renewed momentum in the bloc’s markets.
“The time is coming up to turn bullish on Eurozone equities,” the report said, noting that “the period of consolidation has taken out the positioning and expectations overhang.”
The Euro Stoxx 50 index had failed to make gains since March, even as U.S., Chinese and Japanese benchmarks hit new highs.
J.P. Morgan said this pause helped valuations reset, with the region now trading at “2 standard deviations cheap” relative to the United States.
The upgrade comes as euro zone inflation continues to fall and the European Central Bank maintains its easing cycle.
The brokerage said “ECB cuts could lead to improving credit impulse,” referencing the bank’s analysis that shows a positive relationship between money supply growth and PMI performance.
Euro area CPI dropped from above 9% in early 2023 to below 3% by mid-2025, while the credit impulse has started to rebound.
J.P. Morgan expects German fiscal stimulus to add further momentum. The country’s budget projections show continued investment in infrastructure and climate transition funds, with net borrowing of €146 billion in 2028, narrowing from €186 billion in 2024.
German stimulus impact is likely to become more material, the brokerage said, adding that domestic activity indicators should pick up alongside policy support.
The brokerage’s strategists said they see scope for a rotation out of Japan into the Eurozone taking advantage of Japan’s strong rally and fuller valuations.
Within Europe, J.P. Morgan said a move “out of Italy and Spain, which were very strong performers, into France, which was a big laggard, could be interesting for next year.”
French banks, which have underperformed the broader Eurozone banking sector since early 2024, were cited as potential beneficiaries of renewed interest.
Euro zone earnings, which “disappointed again this year,” are forecast to improve in 2026, with consensus pointing to 14.3% EPS growth versus a 1.8% decline in 2025.
By comparison, the U.S. market shows forward P/E multiples near 23x, while international markets remain cheaper.
“We believe Eurozone risk-reward is turning for the better,” the brokerage added, noting that the region’s valuations, policy backdrop and improving fundamentals set the stage for renewed outperformance.