AI Summary
5 min read🎙️ The Voices & The Context
- The Format: This episode features a structured discussion between two hosts, focusing on the financial outlook for European stock markets in 2026 and reflecting on previous trends.
- The Key Players:
- Paul Walsh: Head of Research Product at Morgan Stanley in Europe, who provides a strong analytical perspective.
- Marina Zavlok: Chief European Equity Strategist, known for her insights on equities and economic trends in Europe. Their chemistry is evident as they build on each other's points, creating a fluid and informative dialogue.
🗝️ Key Themes & Topics
- Economic Performance Review: The hosts reflect on 2025 as a year of two halves, discussing how initial strong performance in the first half was overshadowed by slower growth and execution issues in the second half.
- US Market Influence: The discussion revolves around the “slipstream” effect, where the performance of the US market is expected to significantly impact European equities, emphasizing the correlation between US recovery and European investment opportunities.
- Earnings Expectations: A critical examination of earnings growth forecasts reveals a gap between consensus and reality, particularly highlighting the structural challenges facing European companies, especially in relation to competition from China.
- **Sector Preferences
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What you'll learn
- 1 (00:00) **Introduction** - Paul Walsh and Marina Zavlok introduce the episode's focus on the 2026 outlook for European stock markets.
- 2 (00:39) **2025 Review: A Year of Two Halves** - Marina synthesizes the key dynamics of the past year.
- 3 (02:32) **Bucket 1: The "Slipstream" Thesis** - How Europe could benefit from a strong US market in 2026.
- 4 (04:11) **Bucket 2: Key Themes for 2026** - Thematic drivers for European equities.
- 5 (07:40) **Bucket 3: Sector Preferences** - Data-driven model insights for sector allocation.
- 6 (10:23) **Conclusion** - Paul thanks Marina and closes the episode.
- 7 Standout Quotes
+ Full timestamped outline available in the app
Show Notes
Our Head of Research Product in Europe Paul Walsh and Chief European Equity Strategist Marina Zavolock break down the key drivers, risks, and sector shifts shaping European equities in 2026.
Read more insights from Morgan Stanley.
----- Transcript -----
Paul Walsh: Welcome to Thoughts on the Market. I'm Paul Walsh, Morgan Stanley's Head of Research Product in Europe.
Marina Zavolock: And I'm Marina Zavolock, Chief European Equity Strategist.
Paul Walsh: And today – our views on what 2026 holds for the European stock market.
It's Tuesday, December 9th at 10am in London.
As we look ahead to 2026, there's a lot going on in Europe stock markets. From shifting economic wins to new policies coming out of Brussels and Washington, the investment landscape is evolving quite rapidly. Interest rates, profit forecasts, and global market connections are all in play.
And Marina, the first question I wanted to ask you really relates to the year 2025. Why don't you synthesize your, kind of, review of the year that we've just had?
Marina Zavolock: Yeah, I'll keep it brief so we can focus ahead. But the year 2025, I would say is a year of two halves. So, we began the year with a lot of, kind of, under performance at the end of 2024 after U.S. elections, for Europe and a decline in the euro. The start of 2025 saw really strong performance for Europe, which surprised a lot of investors. And we had kind of catalyst after catalyst, for that upside, which was Germany’s ‘whatever it takes’ fiscal moment happened early this year, in the first quarter.
We had a lot of headlines and kind of anticipation on Russia-Ukraine and discussions, negotiations around peace, which led to various themes emerging within the European equities market as well, which drove upside. And then alongside that, heading into Liberation Day, in the months, kind of, preceding that as investors were worried about tariffs, there was a lot of interest in diversifying out of U.S. equities. And Europe was one of the key beneficiaries of that diversification theme.
That was a first half kind of dynamic. And then in the second half, Europe has kept broadly performing, but not as strongly as the U.S. We made the call, in March that European optimism had peaked. And the second half was more, kind of, focused on the execution on Germany's fiscal. And post the big headlines, the pace of execution, which has been a little bit slower than investors were anticipating. And also, Europe just generally has had weak earnings growth. So, we started the year at 8 percent consensus earnings growth for 2025. At this point, we're at -1, for this year.
Paul Walsh: So, as you've said there, Marina, it's
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