Citi has raised its end-2026 target for the Stoxx Europe 600 index to 640, pointing to around 11% upside, as signs of a cyclical recovery align with sustained fiscal support and a gradual easing in monetary policy.
The bank said its constructive stance on European equities is now “more structural in nature”, citing long-term under-ownership of the region, higher public investment, and growing demand for diversification amid volatility in artificial intelligence-linked sectors.
“Cyclical pickup is evident in improving economic data and broadening EPS,” the note said, with 2026 earnings growth expected to accelerate to 11% on a bottom-up basis, and 8% from a top-down perspective.
Citi expects a wide range of sectors to contribute to the rebound following flat earnings in 2025.
Sector strategy has shifted further towards cyclical names, with overweight calls on basic resources, banks, travel and leisure, and industrials. Health care remains the bank’s preferred defensive allocation.
While Citi remains optimistic, it cautioned that broader market volatility is likely to persist.
“Continued reassessment of the AI thematic, cracks in the US ‘soft landing’, and demanding valuations could cap upside if EPS doesn't deliver,” the analysts said.
Citi’s 640 target assumes stable valuation multiples, with earnings growth doing the heavy lifting in driving returns over the next 12 months.