Goldman Sachs Adjusts European Market Goals and Reallocates Sector Allocations in Response to Energy Shocks

Investing.com - Goldman Sachs has adjusted its European stock market targets and sector allocations in response to rising energy prices and a sluggish economic outlook amid changing macroeconomic conditions.

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The bank stated that rising energy prices have prompted revisions to its economic outlook. “Our commodities strategists have raised their forecasts for oil (average $77 per barrel in 2026) and natural gas prices (average 46 euros per megawatt-hour),” said the strategist team led by Sharon Bell in the latest report.

As a result, Goldman Sachs economists have lowered their U.S. economic growth forecast for 2026, reducing Q4 QoQ GDP growth estimate by 0.3 percentage points to 2.2%, while expecting an annual growth rate of 2.6%. They also noted that inflation prospects are now slightly higher, delaying the Fed’s first rate cut expectation.

“Given the higher inflation path, they have pushed back the first rate cut from June to September, with a second cut in December, and the terminal rate range remains at 3–3.25%,” the strategists said.

In Europe, Goldman Sachs largely maintains its outlook for the major indices but has updated several targets based on recent market trends. The bank continues to expect the STOXX Europe index to reach 605, 615, and 625 points over three, six, and twelve months, implying modest gains of about 1% to 4%.

However, the strategists revised regional targets, lowering the forecast for the Eurozone benchmark index while upgrading the UK market outlook. This adjustment reflects the FTSE 100’s more defensive sector composition and value characteristics, whereas the Eurozone markets have greater cyclical exposure.

At the sector level, the team indicates a slight tilt toward defensive sectors in the portfolio, while reducing exposure to sectors sensitive to recent energy price surges.

In the adjustments, the bank upgraded the construction and materials sector to overweight and added its renewable energy basket and capital-intensive “HALO” companies to the overweight list.

The energy sector was upgraded to neutral, while financial services were downgraded to neutral, and media was downgraded to underweight. The auto and chemical sectors remain underweight due to competitive pressures, especially from China.

Despite the somewhat weak macro outlook, strategists believe corporate earnings may still be relatively resilient. “We believe EPS estimates could once again prove more resilient than actual GDP,” they wrote, noting that even with slowing economic growth, higher energy profits, a weaker currency, and persistent inflation can support nominal earnings.

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