Goldman Sachs Sees European Stocks as 'Secret Outperformer'

Goldman Sachs is optimistic about European stocks, calling them a 'secret outperformer'. The bank's analysts have raised their 12-month target for the STOXX 600 index to 695 from 660. This represents a 6% increase from Monday's close of 656.41.

The growth in European equities has been driven by foreign inflows, which are at their strongest levels in a decade, excluding 2021. Goldman Sachs notes that the STOXX 600's 11% rise this year trails the S&P 500's 13%, but still outperforms.

The bank attributes the success of European stocks to several factors, including higher U.S. starting valuations and a shift in demand for infrastructure. The 'HALO' sectors, which stand for 'heavy assets, low obsolescence', have also benefited from the trend towards asset-heavy businesses perceived as AI-proof.

Goldman Sachs analysts have raised their 2026 earnings growth forecast to 15% from 10%. They expect European stocks to continue performing well due to their ability to generate cash rather than spend it, especially with returns and funding costs of AI being questioned.