Quarterly Strategy Q3 2026 – European Equities

European equities remain resilient because earnings growth and improving activity offset renewed inflation, energy and interest-rate pressures, but the outlook is increasingly dependent on profits and macroeconomic risks.

• Eurozone surprise indicators improved over the summer and manufacturing activity recovered, while the Stoxx 600 still declined 1.1% in Q3 2026.
• Brent crude rose above USD 90 per barrel in July and reached USD 103.5 at the end of September after geopolitical tensions disrupted traffic through the Strait of Hormuz.
• The 10-year German Bund yield increased by nearly 73 basis points to 3.58%, while the ECB raised policy rates by 25 basis points; the French OAT-Bund spread widened by 48 basis points to 127 basis points.
• Sector performance diverged sharply: energy gained 12.5%, banks 6.3% and basic resources 6.0%, while construction and materials fell 9.7%, real estate 8.2% and consumer products 8.3%.
• European earnings-per-share forecasts rose 19.1% for the current financial year and 8.9% for 2027, supporting a Stoxx 600 valuation of 13.9 times forward earnings; ASML gained 10.0% in September as semiconductor expectations recovered.

Takeaway: Investors should focus on earnings delivery while monitoring energy prices, inflation, long-term yields, fiscal risks and central-bank policy; Europe could regain favour if geopolitical pressures ease, especially because its indices are less concentrated in AI-related stocks than US markets.