Goldman Sachs Lifts European Stock Forecasts on Strong Earnings

Goldman Sachs has raised its forecast for European stocks, citing strong earnings results from companies in the region. The bank's analysts have lifted their 12-month target for the STOXX 600 index to 695, up from a previous estimate of 660. This means that Goldman expects the index to rise by around 5% from current levels. Meanwhile, the FTSE 100 target has been raised to 11,400.

The improvement in earnings expectations is being driven by strong performances from energy and materials companies. According to data from LSEG I/B/E/S, aggregate earnings for STOXX 600 firms are expected to grow by 23.4% over the next year. However, Goldman's analysts have also flagged up a risk that an energy shock could hit profits and push investors to demand a 'risk premium', leading to lower valuations.

The bank's warning highlights the sensitivity of European stocks to changes in investor sentiment. As earnings growth is expected to be driven by resilient company profits, rather than rising valuations, even small shifts in expectations can have a significant impact on share prices.