Key Takeaways:
- JPMorgan raises STOXX 600 year-end target to 680, implying 7% upside.
- Panmure warns US CAPE ratio above 40x signals negative returns over a decade.
- Eurozone earnings growth of 18% this year outpaces the US at 16%.
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JPMorgan lifts European stock target 7% as Panmure warns on US
JPMorgan raised its year-end target for European stocks to 680, a 7% gain, while Panmure warned US valuations imply negative returns over the next decade.
"After three relatively pedestrian years, European stocks may generate earnings growth of 18% this year and 27% next, compared with 16% and 19% for the US," Mislav Matejka, head of global and European equity strategy at JPMorgan, said.
Matejka lifted the STOXX 600 target from 630, the level he set last November. The index has already returned 13% this year. He sees another 5% to 10% upside for Eurozone stocks through year-end, driven by a pickup in earnings growth and easing geopolitical risks after the US-Iran peace deal.
Panmure Liberum strategist Joachim Klement and Francisca Reis took a longer view, warning that the cyclically adjusted price-earnings ratio for US stocks has exceeded 40 times for the first time in 26 years — more than double the ratio for European equities. "This is the widest valuation gap we have seen," they wrote. At these levels, Klement calculates expected US returns of minus 2% over the next decade, compared with 6.3% for Europe and 3% for the UK.
Matejka said he is not turning negative on US equities. "Mag7 and SOX are not a sell," he said, referring to the Magnificent Seven tech stocks and the Philadelphia Semiconductor Index. He expects the second half to feature broader market participation with more rotation, after narrow leadership from AI and chip stocks in the second quarter.
The strategist recommends long beta and consumer plays but sees downside for energy stocks as crude prices decline. He also believes the outperformance of defense stocks has run its course. Lower oil prices and bond yields could further boost European equities, he said.
The divergence in outlook comes as the S&P 500 has gained more than 7% in the first half of 2026, with first-quarter earnings rising 28% year over year — the fastest pace since 2021. Wall Street now expects full-year S&P 500 earnings growth of 22%, according to JPMorgan.
The contrasting calls from two major investment banks could accelerate capital rotation from US to European equities, particularly if Eurozone earnings continue to inflect higher. Investors will watch second-quarter earnings season in July for confirmation of the growth divergence between the two regions.
This article is for informational purposes only and does not constitute investment advice.
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