Goldman Sachs raises its forecasts for the European Stoxx 600 index, what is the reason?

Goldman Sachs raised its 12-month forecast for the Stoxx 600 European Index to 580 points from 540, citing the potential benefits of a peace agreement between Russia and Ukraine on stock performance in the region.

The bank's strategists, led by Sharon Bell, stated that progress in peace talks could lead to a reduction in the risk premium, a decline in inflation rates, improved consumer confidence, and enhanced economic growth in Europe. Bell emphasized that "the potential for peace in Ukraine is a significant motivation to reduce risks."

This comes after U.S. President Donald Trump held separate discussions on Wednesday with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky, ordering U.S. officials to begin negotiations to end the three-year-long conflict.

European Markets Trade at a Discount Compared to Their U.S. Counterparts

Despite the improved outlook, European stocks continue to trade at a discount compared to their U.S. counterparts, with the price-to-earnings ratio for the Stoxx 600 at about 17.52, compared to 27.38 for the S&P 500.

European markets have been under significant pressure since the outbreak of the Russian-Ukrainian war, especially due to Europe's reliance on Russia for energy. Western sanctions have led to reduced supplies and rising prices across the region, impacting investment flows into European equities.

According to Goldman Sachs analyses, reaching a limited ceasefire could raise the growth rate of the Eurozone economy by 0.2%.

FTSE 100 Forecasts Show an Increase

Along with raising its forecasts for the Stoxx 600 European Index, Goldman Sachs also raised its 12-month forecast for the UK’s FTSE 100 Index to 9,000 points from 8,600, reflecting the bank's confidence in the performance of British markets as well.

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