What BofA Еxpects for European Stocks?

European stocks face risk of a decline of more than 10% in the coming months, as investors are likely underestimating the threat of a weakening economy, according to strategists at Bank of America Corp.

The team led by Sebastian Raedler expects the Stoxx 600 index to fall to 490 points by the first quarter of 2026, implying a 14% drop from current levels.

“The market currently seems to be pricing in a scenario where the probability of further weakness in the U.S. labor market is low, and the probability of strong productivity growth is high,” the analysts wrote in a note to clients.
“From our point of view, this means the market is underestimating the risk of a weakening economic impulse.”

Raedler is among the more cautious analysts when it comes to European equities and has been warning throughout the year that the slowdown in global economic growth will seriously impact European markets.

He forecasts that the Stoxx 600 index will end 2025 at 520 points, which is below the average forecast of 560 in a Bloomberg survey of 19 strategists conducted last month.

Although European equities reached record highs this week, following the global rally fueled by enthusiasm around artificial intelligence, the index still lags behind the S&P 500. Investors are already looking for a new catalyst that could convince them of a more optimistic scenario for the European economy.