Asset Management: European Equities Quarterly Strategy - October 2026
Fixed Income Quarterly Strategy - October 2026
European fundamentals prove resilient amid renewed inflationary pressures
The European economy remained more resilient than expected in the third quarter, supported by improving activity, corporate earnings and initial German fiscal support. Renewed energy pressures and higher long-term rates nevertheless increased uncertainty. Against this backdrop, the Stoxx 600 declined by 1.1% over the quarter.
Economic activity remained resilient in both the US and the euro area, while persistent inflationary pressures continued to constrain central banks. Bond yields rose sharply, with the 10-year German Bund reaching 3.58% at the end of September, while the ECB raised its key policy rates by a further 25 basis points.
In Europe, a gradual improvement in activity despite a more uncertain external environment
European indicators gradually improved, while investment and fiscal support could sustain activity over the medium term. Higher energy prices and renewed tensions in sovereign debt markets, particularly in France, nevertheless remain key risk factors.
The Stoxx 600’s 1.1% decline masked significant sector divergence. Energy (+12.5%) and banks (+6.3%) benefited from higher oil prices and interest rates, while sectors more sensitive to bond yields and consumption came under greater pressure.
Artificial intelligence remains at the center of market rotations
After a sharp correction in July, AI-related stocks rebounded in August and September, supported by favourable earnings expectations. Investors nevertheless remain increasingly attentive to valuations and the ability of companies to translate AI investment into earnings growth.
Corporate earnings remain the main support for European equities, with EPS growth expected at +19.1% for the current financial year and +8.9% in 2027. Meanwhile, the Stoxx 600 is trading at 13.9x earnings, close to its historical median.
Persistent risks for year-end, but also grounds for optimism
Geopolitical tensions, energy prices, inflation, long-term rates and earnings prospects will remain key drivers towards year-end. German fiscal support and Europe’s lower concentration in AI-related stocks compared with US markets could nevertheless support the region’s relative attractiveness.
