Goldman Strategist Says Europe's Market Surge Is Underappreciated
0h ago|5 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
european-equitiesgoldman-sachs
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Goldman Sachs equity strategist Sharon Bell stated on a Bloomberg Brief segment that European equities represent an underappreciated trade that has worked better than many investors perceive this year. Bell anticipates positive returns for European stocks going forward, citing earnings growth as the primary driver. The comments were made on August 24, 2026, as European markets demonstrated relative strength. Goldman Sachs' own stock, trading under the ticker GS, was priced at $1,039.28 at the time of the analysis, reflecting a daily gain of 1.73%. The STOXX Europe 600 index, a broad benchmark for the region, has advanced 9.8% year-to-date. This performance challenges the longstanding narrative of US market dominance and shifts focus to corporate profitability in Europe.
The affirmation of European equity strength arrives during a period of recalibration for global asset allocators. The last significant period of sustained European outperformance occurred in the first half of 2022, when the STOXX 600 fell 16% compared to the S&P 500's 20% decline, demonstrating relative resilience during a bear market. The current macro backdrop is defined by moderating inflation and a Federal Reserve that has signaled a pause in its hiking cycle, creating a more favorable environment for risk assets globally. The catalyst for the renewed focus on Europe is a tangible improvement in fundamental corporate health. Earnings revisions for European companies have turned positive for the first time in over a year, with the Q2 2026 reporting season surprising to the upside by an average of 4.2%. This fundamental improvement provides a concrete foundation for the optimistic outlook, moving beyond thematic narratives to bottom-up financials.
The quantitative case for European equities is built on several key metrics. The STOXX Europe 600 index's year-to-date return of 9.8% through August 24, 2026, narrows the performance gap with the S&P 500, which has returned 11.5% over the same period. On a sector-adjusted basis, European valuations remain compelling; the STOXX 600 trades at a forward P/E ratio of 14.2, a significant discount to the S&P 500's 20.1. This valuation gap of nearly 30% is above the 10-year average discount of 15%. Earnings per share growth for the STOXX 600 is now projected at 8% for the full year 2026, up from estimates of 5% at the start of the year. The price action in Goldman Sachs shares reinforces the firm's positive stance. GS stock reached an intraday high of $1,043.66, just shy of its 52-week peak, on volume 18% above its 30-day average. The bank's stock performance often correlates with confidence in its strategic calls.
Index Performance and Valuation Comparison (as of 24 August 2026)
| Metric | STOXX Europe 600 | S&P 500 |
|---|---|---|
| YTD Return | +9.8% | +11.5% |
| Forward P/E Ratio | 14.2x | 20.1x |
| Estimated EPS Growth 2026 | +8.0% | +9.5% |
The 10-year German bund yield, a key benchmark for European risk-free rates, was stable at 2.35%, providing a stable foundation for equity valuations without exerting significant upward pressure on discount rates.
The shift in sentiment towards Europe has clear second-order effects across sectors and specific tickers. Cyclical sectors with strong international revenue streams stand to benefit most directly from upgraded earnings forecasts. The European automotive sector, including constituents like Volkswagen and Mercedes-Benz Group, has seen earnings estimates rise by 12% since June, outpacing the broader market. Luxury goods, a European specialty with tickers like LVMH and Hermès International, are also well-positioned to capitalize on global consumer resilience. A primary risk to this outlook is the region's sensitivity to energy price shocks. A sharp rebound in natural gas prices during the winter of 2026-2027 could reverse the improving profit margin trajectory for industrials and chemicals. The counter-argument to the bullish thesis points to slower GDP growth in the Eurozone compared to the United States, which could eventually cap rerating potential. Positioning data from futures markets indicates that asset managers have been steadily increasing their long exposure to Euro Stoxx 50 futures over the past month, while hedge funds remain net short, suggesting a divergence in conviction that could lead to a short-covering rally if the positive data persists.
The immediate catalyst for European equities will be the final revision of Q2 GDP figures for the Eurozone, scheduled for release on September 7, 2026. A confirmation of stronger-than-initially-reported growth would bolster the earnings growth narrative. The next major test will be the European Central Bank's policy meeting on September 14, where commentary on the inflation trajectory will be critical for future rate cut expectations. Traders will monitor the STOXX 600's ability to hold above the 520-point level, which has acted as technical support throughout August. A decisive break above the 540-point resistance level, last tested in July, would signal a continuation of the bullish trend and likely trigger further institutional inflows. For a broader assessment of global risk appetite, the US Non-Farm Payrolls report on September 1, 2026, will be crucial; a softening labor market could enhance the relative appeal of non-US markets like Europe.
US investors gain exposure to European equities primarily through American Depositary Receipts (ADRs) and multinational corporations with significant European revenue. A stronger European economy can boost earnings for US companies like Apple and McDonald's, which derive over 20% of their sales from the region. For direct equity exposure, ETFs like the iShares MSCI Eurozone ETF (EZU) track the performance of major European stocks. Currency fluctuations between the US dollar and the euro also impact final returns for US-based investors, adding a layer of forex risk or opportunity to the investment thesis.
Over the long term, US equities, particularly the S&P 500, have significantly outperformed European benchmarks. From 2010 to 2020, the S&P 500 returned approximately 250% compared to the STOXX 600's 120% return, driven by the dominance of US technology stocks. However, there have been discrete periods of European leadership, such as in 2017 when the STOXX 600 gained 17.5% against the S&P 500's 14.4%, and during the dot-com bust in the early 2000s when European markets proved more resilient due to their lower exposure to tech valuations.
Stock prices are ultimately claims on future corporate earnings, not direct bets on GDP. A country's economy can grow slowly while its publicly traded companies thrive by gaining market share, improving efficiency, or generating revenue abroad. Many European firms, such as those in the luxury goods and industrial sectors, are global entities whose fortunes are tied to worldwide demand, not just regional economic conditions. This decoupling allows European equities to perform well even during periods of modest domestic GDP expansion, as long as corporate profitability is increasing.
European equities present a compelling case based on improved earnings fundamentals and attractive relative valuation.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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