Jun 5, 2026, 6:00 AM ETInterview, Other

Will European Equities Outperform the S&P?

European stocks have rallied to near all-time highs, driven primarily by a 6–7% average upgrade in earnings estimates this year.
Earnings growth is concentrated in the commodity complex, specifically energy, mining, chemicals, and financials benefiting from higher interest rates.
Tech sector earnings also saw upgrades, though the sector remains smaller in Europe compared to the U.S. and Asia.
Downgrades were isolated primarily to consumer discretionary areas.
Goldman Sachs upgraded its 12-month Euro Stoxx 600 forecast to 660, citing resilient earnings and an economy that is avoiding recession.
German fiscal spending is executing as planned, providing a specific boost to European growth.

European equities are significantly less concentrated than U.S. equities; the top 10 U.S. companies comprise 40% of the index, whereas the top 10 European companies make up only 15%.
The 15% concentration level for European large caps represents the lower end of the region's historical concentration range.
Returns in Europe display broader breadth compared to the U.S., with gains distributed across more sectors and countries.
Despite broader participation, European markets are still influenced by themes driving U.S. returns, including AI, energy, and tech.

Goldman Sachs' base case projects European returns of high single digits over the next 12 months, though U.S. and Asian markets are expected to outperform Europe.
U.S. outperformance is anticipated due to hyperscalers, strong economic growth, and the dominance of semi and tech sectors.
Europe offers diversification and value benefits but faces lower return potential due to a lack of energy independence compared to the U.S.
Investors can expect Europe to participate in the AI trade through utilities and industrials requiring energy and infrastructure for data centers.
European heavy asset companies, particularly in industrials, defense, and aerospace, are benefiting from increased government spending on infrastructure and defense.

Short-term trades may favor consumer discretionary companies if oil prices decline and the "mood" of the market opens up.
Longer-term investment strategies favor "halo stocks," defined as high-quality heavy asset companies with low obsolescence risk that underperformed post-financial crisis.
Specific favored sectors include utilities, telecoms, industrials, energy companies with strong asset returns, renewables, defense, and aerospace.
The European banking sector is viewed favorably under a scenario of higher interest rates for longer.
The European tech sector is considered attractive as it trades at a discount relative to similar global companies.

A critical catalyst for European market confidence is the reopening of the Strait of Hormuz and a subsequent decline in energy prices.
The absorption of upcoming major U.S. IPOs will also influence European equity performance.
The second-quarter earnings season is a crucial period to assess how companies have digested higher energy costs.
Goldman Sachs economists forecast a 25–26% probability for Spain to win the World Cup and a 5% probability for England.