What does Goldman expect for European stocks in 2027?

Goldman Sachs anticipates modest growth for European equities in 2027, projecting a 9% return for the STOXX 600 index over the next year. Despite growth in technology, defense, and other sectors, slower earnings in Europe, driven by declining energy and weaker overall economic performance, are expected to limit upside. The bank forecasts the STOXX 600 index will reach 670, 680, and 700 by three, six, and 12 months respectively, translating to a 5.6% price return and an 8.9% total return.

Goldman views European markets as less lucrative than U.S. and Asian counterparts, but still sees value in diversification, cash flow, and foreign investor inflows. Key to its outlook is the expectation of lower energy prices, with Brent crude potentially falling to $78 a barrel and European gas prices to €31 per megawatt-hour by year-end.

Goldman is primarily overweight on technology, consumer discretionary, telecoms, utilities, defense, aerospace, and renewables, while downgrading banks, insurance, and energy sectors due to their exposure to competition. The investment bank also recommends a higher allocation to the DAX index over the broader STOXX 600 and UK domestic stocks over the FTSE 100, citing Germany's fiscal support and the UK's potential benefits from lower energy prices and government bond yields.