Goldman Sachs Adjusts European Sector Outlook for 2027

Goldman Sachs has revised its stock market outlook for 2027, lowering its recommendations for the energy, banking, and insurance sectors in Europe. The American bank expects a decline in hydrocarbon prices and bond yields, which could favor growth stocks. This change is based on anticipated shifts in energy prices and interest rates.

The bank forecasts that the price of Brent crude will drop to $78 per barrel by the end of 2027, while European gas prices, quoted on the TTF market, may settle around €31 per megawatt-hour. This decrease in hydrocarbon prices is expected to negatively impact the profit outlook for energy companies. Conversely, it could reduce costs for industrial companies and support sectors sensitive to energy spending.

Goldman Sachs has downgraded its recommendation for the energy and insurance sectors from "neutral" to "underweight," while the banking sector has been revised from "overweight" to "neutral." This cautious approach is partly due to the sensitivity of banks and insurance companies to bond yields. The bank expects interest rates to decline in several European economies, potentially affecting their profitability and stock attractiveness.

The analysts recommend focusing on companies that are more likely to benefit from a lower interest rate environment and long-term growth dynamics. Sectors such as technology, retail, telecommunications, utilities, defense, and renewable energy have positive recommendations. Conversely, the bank remains cautious about the automotive and chemical sectors, which are exposed to Chinese competition and energy constraints.

Beyond sectoral adjustments, Goldman Sachs predicts a slowdown in the growth of European company earnings, from 18% in 2026 to 7% in 2027. This moderation is attributed to expected declines in energy results, economic slowdown, and the impact of financing and energy costs. The bank forecasts limited but positive growth in European stock markets.

Goldman Sachs sets a target of 670 points for the STOXX 600 index in three months, 680 points in six months, and 700 points in twelve months. This last forecast corresponds to a potential return of 6% on stock prices and 9% including dividends. The index has already risen by 15% since the beginning of the year, with an anticipated price-to-earnings ratio of 14.1.

Geographically, the bank favors German stocks, recommending exposure to the DAX over the broader STOXX 600. It also prefers British companies focused on their domestic market over large FTSE 100 companies more exposed to international markets. However, Goldman Sachs remains cautious about French domestic stocks due to risks related to the country's budgetary and sovereign situation.

Key points

• Goldman Sachs downgrades energy, banking, and insurance sectors in Europe.
• The bank expects a decline in hydrocarbon prices and bond yields.
• Growth stocks may be favored in the new market environment.