Goldman Sachs has announced an upward revision of its 12-month target for the STOXX 600 index to 660, highlighting the resilience of corporate earnings growth even amidst the ongoing conflict in the Middle East. This adjustment suggests a potential 5.4% increase from the index’s last close at 626.

Market Performance and Influences

The STOXX 600, a key pan-European benchmark index, has been performing near record highs, achieving a 2.5% gain in May. However, the escalating tensions in the Middle East have tempered investor sentiment, limiting further growth potential. Despite these challenges, Goldman Sachs remains optimistic about the market’s prospects, supported by solid nominal growth, positive energy sector revisions, and robust market margins.

AI-related optimism has also played a significant role in supporting the market rally. However, the brokerage warns that inflationary pressures and the expectation of sustained high interest rates are capping valuations, which could otherwise be higher.

Sector and Investor Insights

While the European market does not face the same concentration issues as the U.S., the rally has been primarily driven by AI-related and energy stocks, with consumer-related sectors lagging behind. The STOXX 600’s 12-month forward price-to-earnings ratio stands at 17.55, making it relatively more affordable compared to the S&P 500 index’s 27.94.

Goldman Sachs forecasts a 10% earnings-per-share growth for the index in 2026, with a slowdown to 5% in 2027 as higher energy costs impact margins. International investors continue to see Europe as a valuable and diversified investment opportunity, while domestic investors remain cautious due to weak economic growth and uncertainty.

Goldman Sachs also notes that concerns about equity supply may be overstated, as there is still a strong appetite for market absorption.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.