Goldman Sachs analysts recently raised their 12-month target for the European benchmark STOXX 600 index to 695 from 660.

Foreign inflows have helped drive the strongest inflows into European equities in a decade, not counting 2021, the bank wrote.

Goldman Sachs has great expectations for European stocks. 

The bank's analysts lifted their 12-month target for the European benchmark STOXX 600 index to 695 from 660, about 6% higher than Monday's close of 656.41. They also raised their 2026 earnings growth forecast to 15% from 10% in a pair of recent notes to clients, calling the continent a "secret outperformer."  

Much of Europe's recent strength has been driven by the financial sector. Total returns for European bank stocks have outperformed the Magnificent 7 since 2022, the bank noted, though the STOXX 600's 11% rise this year trails the S&P 500's 13%.

Foreign inflows have helped drive the strongest inflows into European equities in a decade (not counting 2021), the bank wrote, though "performance has been far more mixed than the market-narrative or most investors realise." 

"Higher U.S. starting valuations, the benefit of higher rates for European banks, and a shift in demand for infrastructure have benefited Europe's HALO stocks and other value-oriented, asset-heavy sectors. Moreover, we have seen a marked improvement in European ROE, which is second only to the U.S.," the bank wrote. (The "HALO" stands for "heavy assets, low obsolescence," and describes infrastructure-heavy businesses perceived as AI-proof.)

"With the returns and funding cost of AI being increasingly questioned, Europe's status as a market generating cash rather than spending it could be to its advantage, as we have seen this year." 

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