European stocks have had a solid start to 2026, but analysts now expect a mid-year pullback before modest gains by year-end.

According to a Reuters poll:

  • The STOXX 600 is expected to end 2026 at 640 points, implying only a 2% gain from current levels.
  • The index is already up about 6% this year.
  • 53% of strategists expect a correction within the next three months.

The Euro STOXX 50 is forecast to dip mid-year before closing around 6,200, marking a 7% annual gain.

Why Could Stocks Pull Back?

Markets face several risks:

  • Geopolitical tensions (Ukraine, Gaza, US–Iran standoff)
  • Oil price risks, which could push inflation higher
  • Trade uncertainty after tariffs introduced by Donald Trump were partially struck down and replaced with new duties
  • Ongoing AI-related volatility

Analysts say the environment remains unstable, even if the long-term trend is still positive.

Europe vs US: AI Is the Big Difference

Investors have rotated into Europe this year amid policy uncertainty in the US.

However, the US still dominates in technology and AI sectors, which could support stronger earnings growth there.

Europe is:

  • Less exposed to AI infrastructure winners
  • But also less exposed to AI disruption risks

Some strategists warn that heavy AI spending could eventually hurt profit margins if competition increases and returns on capital fall.

European stocks are expected to finish 2026 slightly higher, but the easy gains may be behind them.

With geopolitics, oil prices, tariffs, and AI uncertainty all in play, analysts expect more volatility and possibly a short-term correction before markets stabilize.

Related: UK says ‘nothing is off the table’ in response to US tariffs

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