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Overview
25 February 2026, 14:30 UTC
Investment Research
Brightening outlook for Europe's stock markets
Author: Matthew Carter, Strategist, UBS AG London Branch
•
We believe Eurozone equities can rally, supported by
a cyclical recovery, a return to earnings growth, and attractive current valuations. •
The structural backdrop is the strongest it has been
in 15 years, supported by healthier banks, a robust capex outlook, and the potential for further EU reforms. •
We highlight sectors with the most distinctive
strengths, leading European companies, and firms that have been excessively sold off following AI- related disruptions.
In recent months, headlines have been dominated
by the disruptive potential of artificial intelligence, persistent geopolitical tensions, and most recently, the Supreme Court’s decision to strike down US President Trump’s “reciprocal” tariffs. These global narratives, while important, can easily distract investors from a more encouraging story unfolding closer to home: The improving economic and market outlook across Europe's equity markets.
As the dust settles from recent volatility, the case
for European equities—particularly in the Eurozone —has grown stronger, supported by a combination of macroeconomic resilience, sectoral opportunity, and attractive valuations. Europe’s economy is showing clear signs of stabilization and recovery. After a challenging period marked by energy shocks and weak external demand, leading indicators now point to a broadening upturn. Real incomes should rise as inflation moderates and high levels of household savings offer a potential boost to spending. Fiscal policy in Germany, in particular, should also translate into stronger growth in the country and the broader Eurozone this year and next. The European Central Bank's (ECB) judgment that monetary policy is “in a good place” means clarity on interest rates, which can help some more rate-sensitive sectors. These factors are laying the groundwork for a more robust growth trajectory in 2026. Better economics is only part of the story. There are three main reasons why Eurozone equities stand out to us in the current environment:
First, Eurozone stocks should be supported by an
improving cyclical outlook driven by improving consumer and business confidence, trade clarity, and supportive monetary and fiscal policy. After three years of stagnation, we see earnings growing 7% in 2026 and 18% in 2027.
Second, we believe the structural backdrop is at its
brightest in 15 years. This is thanks to a healthier banking sector, brighter outlook for capital expenditure, low private sector borrowings, the Eurozone’s exposure to structural themes beyond tech, and the potential for EU reform.
Third, we believe Eurozone stocks offer reasonable
valuations, considering our outlook for earnings and relative to other equity markets.
Within the Eurozone, beneficiaries of structural change
include: IT companies and industrials, which are supported by trends such as electrification, data center buildouts, re- shoring, and defense spending; and utilities, which benefit from rising power demand and electrification. Many of these sectors are also trading at attractive valuations. This report has been prepared by UBS AG London Branch. Please see important disclaimers and disclosures at the end of the document.
