Two of the world’s most influential investment banks just told their clients to get more bullish on Europe. Goldman Sachs and Barclays both raised their year-end targets for the STOXX 600, Europe’s benchmark equity index, citing the ripple effects of a freshly signed US-Iran memorandum of understanding that sent oil prices into a nosedive and equity markets surging.

Barclays moved its STOXX 600 year-end target to 670, up from a previous 620. Goldman Sachs set its own 12-month target at 660. A broader survey of 16 strategists now projects the index to close at 640 by the end of 2026.

What the deal actually changes

The US-Iran MoU, signed around June 17, includes a 14-point framework establishing an immediate ceasefire and a 60-day negotiation window. The agreement reopens the conversation about oil transit through the Strait of Hormuz and lays the groundwork for further discussions regarding Iran’s nuclear program.

Roughly a fifth of the world’s oil supply passes through the Strait of Hormuz on any given day. Oil prices dropped approximately 4% immediately after the deal was announced.

Barclays didn’t just raise its target number. The bank shifted its entire stance from Underweight to something considerably more constructive, driven by what it described as lower oil prices and an improved macro outlook.

Why the earnings picture is shifting

Goldman Sachs emphasized resilient corporate earnings as the primary driver behind its upgraded target of 660. Before the deal, stagflation fears had been weighing on European sentiment. A 4% drop in oil prices meaningfully reduces the probability that the stagflation scenario plays out.

The 50-point jump in Barclays’ target, from 620 to 670, represents roughly an 8% upward revision.

What this means for investors

The consensus target of 640 across 16 surveyed strategists suggests that while optimism is growing, it isn’t uniform. The spread between Barclays at 670 and the median at 640 reflects meaningful disagreement about how durable this rally will be.

The MoU establishes a 60-day window for negotiations. Markets have priced in the best-case reading of the deal. If talks stall, or if either side violates the ceasefire terms, oil risk premium returns and equities face pressure.

For sector allocation, energy stocks face margin compression from lower oil prices, while sectors that consume energy as an input — autos, consumer discretionary, and industrials — stand to benefit from lower costs.

Watch the oil market for early warning signals. If crude prices stabilize at these lower levels or drift further down, it validates the upgraded equity targets. If oil starts creeping back up before the 60-day window closes, those STOXX 600 targets may need another revision.