Citi Predicts STOXX 600 to Hit 580 by 2025, Driven by Profits

Key Takeaway

• Citigroup forecasts the STOXX 600 index to rally 11% to 580 points by mid-2025, driven by rising profits and favorable macroeconomic conditions.
• Citi favors technology, industrials, healthcare sectors, and has upgraded travel and leisure; remains cautious on autos, telecoms, utilities.
• European stocks regain ground with a 0.2% rise in the Stoxx 600 Index amid shifting focus from French political uncertainties to US interest rates.

European Stocks Forecast

European stocks are projected to reach new highs by mid-2025, driven by rising profits, according to Citigroup strategists. The STOXX 600 index is expected to rally 11% to 580 points, following a solid performance this year. The index has already increased by 9% year-to-date, breaking into uncharted high levels in May. Key sectors contributing to these gains include technology, banking, and healthcare.

Strategists led by Beata Manthey remain optimistic about positive earnings momentum and favorable macroeconomic conditions in the region. The recent interest-rate cut by the European Central Bank has further bolstered this outlook. Citi’s base case anticipates valuation multiples to remain steady at around 14 times forward profits, although they caution that this might be conservative in a monetary easing cycle.

Sector Preferences

Citi continues to favor the technology, industrials, and healthcare sectors. Additionally, the firm has raised its recommendation for the travel and leisure sector. However, analysts remain cautious about the autos, telecoms, and utilities sectors and have downgraded their rating for construction materials.

The enthusiasm for stocks is also reflected in the latest MLIV Pulse survey, where more than 60% of respondents expect US stocks to outperform Treasuries on a volatility-adjusted basis next month. This reading has been higher only three times since the survey began in August 2022. Interestingly, US and Canada respondents were less bullish on stocks compared to their international counterparts.

Market Movements

European stocks have regained ground as attention shifts from political uncertainties in France to the path of interest rates in the US. The Stoxx 600 Index rose by 0.2%, led by retailers and defensive sectors like utilities and consumer goods makers. France’s CAC 40 Index also saw a 0.4% increase after previous session losses.

Among individual stocks, Societe Generale SA shares slipped following a Reuters report that the French bank is struggling to reach a deal for its securities services unit. Shares in Atos SE fell after the French IT services firm decided to proceed with a proposal by top shareholder Onepoint to take over the heavily indebted company.

Earlier, European stocks had fallen from a recent record after President Emmanuel Macron called a snap French election following a defeat in the European Parliament election. This move has added to jitters over rising political uncertainty in Europe, with Britons also heading to the polls early next month. Morgan Stanley analysts noted that while the selloff in French banking stocks appears overdone, continued weakness is likely until the results of national elections are known.

Street Views

• Beata Manthey, Citigroup (Bullish on the European market):

  "We remain encouraged by a positive earnings momentum and favorable macroeconomic conditions in the region with a first interest-rate cut from the European Central Bank last week."

• Citi Strategists (Bullish on tech, industrials, health care; Cautious on autos, telecoms, utilities; Bearish on construction materials):

  "Citi continues to favor tech, industrials and health care and raises its recommendation for travel and leisure. Its analysts remain cautious on autos, telecoms and utilities while it cut its rating for construction materials."