STOXX Europe 600: UBS weighs in as index hits its 2025 price target

Investing.com -- The STOXX 600 index has reached UBS’s 2025 price target of 550, prompting the bank to weigh in on the outlook for the region’s equities. UBS strategists reiterated a neutral stance on the index at current levels, but see potential for upside into 2026.

The firm maintains a 2026 price target of 590, implying 7% upside from current levels.

The index’s forward price-to-earnings (P/E) ratio is nearly 15x, a level that the strategists considered “reasonable” heading into year-end, reflecting expectations of growth acceleration in the coming years.

They believe that as the late 2026 growth enters the 12-month earnings window, equities could rally further to sustain current valuation multiples.

However, earnings momentum remains weak in the near term. UBS expects only 2% sales and 3% earnings growth for the index in 2025, following broad-based downgrades, especially in sectors sensitive to tariffs and currency fluctuations such as autos, household and personal products, food and beverage, and luxury goods.

With the euro likely to rise above 1.20, the bank continues to avoid areas most exposed to trade and foreign exchange (FX) headwinds. Forward 12-month EPS growth is now expected to turn negative, though UBS anticipates a rebound as the impact of 2026 expansion builds.

Strategists describe the market as being in a prolonged late-cycle expansion that began in late 2022.

Despite soft manufacturing and a lackluster cycle so far, they remain “cautiously optimistic as there is little evidence of effects in Q2 macro data.” Credit spreads continue to tighten, supporting equity valuations.

Meanwhile, investor flows into Europe have resumed, with actively managed funds capturing a growing share.

“We have advocated for this based on tariffs, FX, stimulus and bond yields being drivers of high ’alpha opportunity’ in Europe,” the team led by Gerry Fowler wrote.

Looking ahead, they expect earnings momentum to improve by late 2026, supported by accelerating new orders and fiscal stimuli.

In the meantime, UBS favors sectors like insurance, telecoms, industrials, banks, and utilities, while remaining cautious on those exposed to tariffs and currency volatility like pharma and energy.