Goldman Sachs has raised its 12-month target for Europe's STOXX 600 index to 700 points, arguing that European shares stand to gain more than any other major market from easing energy supply pressures and lower energy prices.

The Wall Street bank lifted the target from 695 on Friday, 13 November, implying upside of about 5.4% from the index's level of 664.01. The call came as European shares paused for breath after a record-breaking week, with the STOXX 600 down 0.2% at 662.64 points in early trading on Friday as uncertainty over the outlook for artificial intelligence rippled through global markets.

That pullback followed a strong run. The STOXX 600 breached record-high levels for the first time since August earlier in the week and was up more than 2% for the week, its strongest weekly gain since June. By contrast, the S&P 500 in the United States remained more than 3% away from its all-time high. Friday's caution was driven in part by the abrupt resignation of Nvidia chief executive Jensen Huang, which unsettled technology shares worldwide.

Why Goldman is backing Europe

Goldman said European equities have the most to gain from relief on energy supply and prices, a theme that has supported the region's markets through a strong earnings season. Strategists led by Sharon Bell also pointed to rising capital spending in Europe and around the world, adding that they expect the rollout of data centres to remain a strong driver of earnings for companies supplying the sector.

The bank's optimism comes with a warning about the pace of profit growth. Goldman expects European earnings growth to slow to 7% in 2027 from 18% in 2026, partly because of lower energy earnings and partly because weaker economic growth, thinner margins and the delayed effect of higher energy costs and interest rates will feed through to company results.

Sector calls: energy, banks and insurers cut

Alongside the higher index target, Goldman downgraded the European energy sector to "underweight" from "neutral", a shift that reflects its view that energy prices will ease and energy company earnings will soften. It also cut its rating on European banks to "neutral" and on insurers to "underweight", saying both groups tend to move with bond yields, which the bank expects to fall.

Those calls underline the bank's central argument: if energy costs fall, the benefit flows mainly to energy users and consumers across Europe, while the producers themselves face a tougher earnings outlook. For investors, the message is to look beyond the energy sector itself for the winners from cheaper energy.

Europe still cheaper than the United States

Goldman also noted that European shares remain cheaper than their US counterparts, although the valuation gap has narrowed, mainly because US stocks have become cheaper relative to their earnings. The STOXX 600 has risen by more than 12% so far this year, slightly ahead of a 10.9% gain for the S&P 500.

Investors, especially those based in the United States, are putting increasing amounts of money into Europe, mainly through global and global ex-US funds, according to the bank. That flow of money has helped to support European markets even as worries about inflation and the path of interest rates have persisted.

A target raised twice in three months

Friday's move is the second increase in Goldman's STOXX 600 target in three months. The bank raised the target to 695 in August, from 660, and the index has since pushed through that level on its way to fresh records. The new target of 700 extends the bank's expected range rather than simply catching up with a market that has already arrived.

Not every company is sharing in the rally. On Friday, Cartier owner Richemont fell 7% after reporting that sales grew by 13% in the three months to September, slower than the 20% growth rate of the previous quarter. Chip stocks such as Siltronic and Aixtron each fell by more than 1%, while the broader technology sector lost 0.6%.

What to watch next

Whether Goldman's call proves right will depend largely on energy markets. A sustained fall in energy prices would support the bank's case for Europe, while any renewed supply disruption would work against it. Investors will also watch the rest of the earnings season, the path of interest rates and whether the nerves around artificial intelligence that hit markets on Friday prove to be a brief pause or the start of a deeper reassessment.

For now, though, one of Wall Street's most closely watched banks is betting that Europe's record run has further to go. This article is for information only and is not investment advice. Sources: Reuters and Reuters.