STOXX 600 hits record; BofA raises year-end target

Europe’s STOXX 600 index climbed to a record 653.19 on Friday before easing to about 652.66, putting the benchmark on track for its largest weekly gain in over a month. Bank of America raised its year-end target for the STOXX 600 to 630 from 590 while flagging risks that could push the index lower before a recovery.

Bank of America attributed the target upgrade to an improving euro-area growth outlook as the energy shock linked to the Iran conflict eases and German fiscal stimulus begins to support activity. The bank’s economists expect domestic demand to reaccelerate through year-end, supported by a less hawkish European Central Bank and easing inflation pressures. BofA described the current conditions as a “mini-Goldilocks moment.”

The bank retained an underweight stance on European equities relative to global peers and cautioned that valuations are stretched. BofA projects the STOXX 600 could drop to about 595 in early Q4 because of rich valuations, a potential slowdown in AI-driven market momentum and rising credit risks, before recovering toward the 630 year-end target. Strategist Sebastian Raedler warned the “European market remains priced for perfection.”

JP Morgan and Barclays have also raised targets in recent weeks, and Barclays abandoned a previously bearish stance on the region.

UBS analysts argued that gains tied to AI investment may spread beyond technology into industrial and luxury stocks. They pointed to re-shoring of industrial capacity, government spending programmes and data-centre construction as demand drivers, and noted European industrials trade at a discount to U.S. peers.

Earnings data add nuance to the rally. IBES figures show STOXX 600 companies are forecast to post average earnings growth of 14.5% in Q2; excluding the energy sector, expected profit growth falls to 5.5%. That concentration on oil and gas earnings increases the region’s sensitivity to energy-price swings.

BofA upgraded the United Kingdom to overweight from marketweight and kept an overweight view on Germany, saying both markets look too pessimistically priced relative to their underlying outlooks. The bank and other strategists recommended selective exposure given high valuations and a narrower earnings base.