Introduction#

Goldman Sachs has made changes to its European equity targets and sector strategies in response to increasing energy prices and a less optimistic growth outlook. These adjustments reflect the evolving economic landscape.

Impact of Rising Energy Prices#

The bank's analysts noted that the rise in energy prices has led to updates in their economic forecasts. They expect oil prices to average $77 per barrel by 2026 and gas prices to average 46 EUR per megawatt-hour. This shift has prompted Goldman Sachs to lower its growth forecast for the U.S. economy, reducing the estimate for GDP growth in 2026 by 0.3 percentage points to 2.2%.

Adjustments in Economic Forecasts#

Goldman Sachs also revised its inflation outlook, which has delayed expectations for the first interest rate cut by the Federal Reserve. The anticipated cut has been moved from June to September, with a second cut expected in December. The terminal rate is projected to remain between 3% and 3.25%.

Changes in European Market Targets#

In Europe, Goldman Sachs has kept its overall index outlook stable but updated specific targets to align with recent market trends. The bank continues to forecast the STOXX Europe index at 605, 615, and 625 over the next three, six, and twelve months, indicating a modest potential increase of about 1% to 4%. However, they have lowered their forecast for the Euro area while raising expectations for the U.K. market, highlighting the defensive nature of the FTSE 100 compared to the more cyclical Euro area market.

Sector Strategy Adjustments#

At the sector level, Goldman Sachs is shifting its focus towards more defensive areas and reducing exposure to sectors impacted by rising energy costs. Notable changes include raising the Construction & Building Materials sector to Overweight and adding Renewables and capital-intensive "HALO" companies to the same category. Meanwhile, Energy has been adjusted to Neutral, Financial Services to Neutral, and Media has been downgraded to Underweight. The Autos and Chemicals sectors remain Underweight due to competitive pressures, particularly from China. Despite these challenges, Goldman Sachs believes corporate earnings may still show resilience, supported by higher energy profits and inflation.