(Bloomberg) -- It’s not even March yet and strategists are saying this week’s record high for European stocks is as good as things will get for investors this year, according to a Bloomberg survey.

The Stoxx Europe 600 Index will finish 2026 little changed from Wednesday’s all-time high of 630 points, according to the median of 17 forecasts in the poll. Supportive tailwinds for the region’s stocks have largely already played out, while expectations for double-digit increases in company earnings appear demanding, strategists said.

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The better news is that few predict major declines, with government spending and low interest rates expected to boost Europe’s economy. HSBC Holdings Plc remains the biggest bull with a 670 points target, implying gains of almost 7%. Only two strategists see the threat of a drop of 10% or more: TFS Derivatives and Bank of America Corp.

“European equities have had a strong run and are fast approaching our year end target, while the EPS revisions continue to be negative driven by internationally exposed stocks,” said Beata Manthey, head of global and European equity strategy at Citigroup Inc. “We watch for signs of broad-based EPS inflection. For now, we have a strong preference for domestic versus international oriented stocks.”

The Stoxx Europe 600 index has quickly added more than 5% to last year’s rally of almost 17% and is trouncing the S&P 500. The US benchmark has struggled as investors switch out of mega-cap stocks in favor of markets in the rest of the world and rush to avoid stocks seen as under threat from new artificial intelligence tools.

But Europe’s eight consecutive months of gains and steadily increasing earnings estimates have pushed stock valuations to their highest level in over five years. The Stoxx 600 now trades near 16 times forward earnings, compared with a 13.3 average over the past 20 years.

That’s close to the priciest stocks have historically been, outside of bubble periods or recessions. Meanwhile, hopes of good news on the quarterly earnings front are running so high — especially for the second part of the year — that there is a real danger of disappointment.

“We continue to see risks around the double‑digit earnings expectations for 2026, particularly in the second half of the year,” said Societe Generale SA strategist Roland Kaloyan, who categorized this latest earnings season as positive without being exceptional. “This could push equity indexes slightly below current levels, especially given that the market is currently applying elevated valuation multiples to these high expectations.”

Rotation between sectors has been a clear tactic for investors of late, with a barbell approach that uses exposure to economically-linked industrial cyclical stocks and defensive names proving to be the right combination so far.

Commodity stocks have led the advance, thanks to the weaker dollar and growing demand for metals crucial to the energy transition. Stalwarts in the utilities, telecoms and health care sectors have also fared well.

By contrast, consumer discretionary shares, as well as AI-disrupted media and tech, have been left behind. Overall, a preference for more domestically exposed stocks has stopped rewarding investors, with exporters also performing well.

“Europe is still a market of divergences driven by currency, tariffs, fiscal stimulus as well as AI enablement, adoption and disruption,” said Gerry Fowler, head of European equity strategy at UBS Group AG. “Index gains remain slow given this wide stock dispersion, but buying pressure from international investors continues to backstop index valuations.”

European fund managers remain more optimistic than equity strategists about the region. They appear convinced that heavy fiscal support, Germany’s off-budget infrastructure fund and rising defense commitments will lead to earnings growth. A net 35% say they are overweight European equities relative to global markets, up from 9% three months earlier and close to the level reached around the time of the first German fiscal announcements a year ago, according to a Bank of America survey.

“Investor bullishness has cooled a little on Europe’s absolute performance, though the net 78% that expect further near-term gains for EU equities and the 89% that project upside over the coming 12 months remain close to the recent record highs,” wrote strategists including Andreas Bruckner.

What Bloomberg Intelligence strategists say:

“European 4Q earnings are modestly outperforming expectations — led by banks and pharmaceuticals — but the market response signals investors want visibility beyond incremental beats. A sub-50% beat rate and sharp punishment for cautious guidance show EPS optimism is baked in. Earnings upside hinges on margin resilience and management conviction as FX replaces tariffs as the key concern.”

— Laurent Douillet, senior equity strategist. Click here for full report

Unicredit Group’s Christian Stocker is among those who are positive about the outlook, while seeing limited potential for further gains this year. “We expect earnings growth of around 10% for the companies in the Stoxx Europe 600 in 2026, supported by a gradually improving GDP growth within Europe,” he said.

Stocker has a target of 630 points for the benchmark index. “We expect the strongest performance in 2026 from sectors such as basic resources, telecommunications, chemicals, and industrial goods,” he said. “The technology sector, however, is likely to be weighed down by concerns over disruptive distortions and to develop significantly more selectively than in the past two years.”

--With assistance from Leslie Nutakor.

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