Quarterly Strategy Q3 2026 – European Equities

European equities remain resilient because improving earnings and fiscal support offset renewed energy, inflation and interest-rate risks, but the outlook remains volatile.

• The Stoxx 600 fell 1.1% in Q3 2026 as Brent crude rose above USD 90 per barrel in July and reached USD 103.5 by the end of September after renewed tensions around the Strait of Hormuz.
• The 10-year German Bund yield rose by nearly 73 basis points to 3.58%, while the ECB raised its key policy rates by 25 basis points in September; 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%, basic resources 6.0% and chemicals 3.8%, while construction and materials fell 9.7%, real estate 8.2% and consumer products 8.3%.
• Technology stocks declined 11.8% in July before recovering, and ASML gained 10.0% in September as upward earnings revisions revived enthusiasm for artificial intelligence despite valuation and investment-return concerns.
• Earnings expectations remain the main support, with projected EPS growth of 19.1% for the current financial year and 8.9% for 2027; the Stoxx 600 trades at 13.9 times earnings, close to its historical median.

Takeaway: Investors should focus on energy prices, long-term yields, fiscal risks, central-bank policy and earnings delivery; European equities could regain favour if geopolitical tensions ease, especially because the region is less concentrated in AI stocks than the United States.