A Reuters poll discovered that a notable portion of investors and strategists foresee a correction in their local European stock market in the next three months, followed by a resurgence in 2026. The poll revealed that 54% of participants anticipate a downturn of 10% or more, up from 50% in November, after a strong performance this year that has propelled European stocks to outperform Wall Street.
The region-wide STOXX 600 is expected to hover around current levels by the end of 2025 before reaching a record high of 610 points by mid-2026. Conversely, the Euro STOXX 50, which has outperformed the STOXX 600 this year propelled by banks like Santander, software group SAP, and luxury stocks, may face a larger drop.
The median estimation suggests a 6.5% decline by mid-2025 from Monday's close at 5,453.76 points. The index is predicted to reach 5,325 by the year-end and surge to a new peak of 5,725 by mid-2026.
Morningstar strategist Michael Field emphasized that a potential 10% correction this year is feasible due to high valuations and geopolitical uncertainties. Field added that European markets are currently fairly valued, with future advancements potentially reliant on investor sentiment rather than fundamental factors.
European equities have shown an increase this year, with the STOXX up over 9% and the Euro STOXX 50 up 11%, compared to a modest 1.7% gain for the S&P 500, affected by decreasing tech enthusiasm.
Andreas Bruckner, European equity strategist at Bank of America, predicts slower global growth impacting profit projections and increasing risk premia. Tomas Hildebrandt from Evli in Helsinki underlined rising uncertainties over tariffs and the Ukraine conflict as major concerns for businesses.
Looking ahead to 2026, optimism is higher among investors as European earnings growth is expected to rise to 11.2%. Favorable factors for European equities include cheap relative valuations, potential Chinese market recovery, increased defense spending, ECB rate cuts, and probable fiscal stimulus.
Marco Vailati, head of research and investments at Cassa Lombarda, pointed out that reasonable valuations, controlled inflation, and growing earnings are positive factors supporting European equities.
Notably, the STOXX 600 trades at a substantial discount of around 36% to the S&P 500 based on a 12-month forward PE metric, as per LSEG Datastream data.