Are European Stocks Peaking? SocGen,Citi Turn Bearish on Q4, U.S. Regional Bank Crisis Adds New Risk

TradingKey - A series of bad loan incidents in the U.S. are catalyzing a credit crisis in the banking sector, and these concerns are now spreading to Europe’s top-performing bank stocks this year. The worry comes at a time when institutions like Citi and Société Générale are turning cautious on European equities for Q4 — raising fears that credit issues could intensify pressure on European markets.

As of writing (October 17), the Stoxx 600 Banks Index plunged 2.70%, with major banks including Deutsche Bank, Société Générale, and Barclays all falling over 4%. The day before, the U.S. regional bank index (KRE) dropped over 6% after Zions Bancorp and Western Alliance disclosed significant loan fraud losses.

Source: MarketWatch

Panmure Liberum said the market’s initial negative reaction reflects growing fears that problems facing U.S. banks could spill over into Europe — similar to the regional banking crisis of 2023. Given that valuations were already somewhat stretched, the sell-off in banks is understandable.

The banking sector has been the best-performing area in European equity markets this year, with the relevant index up over 40% year-to-date. With European stocks near record highs, more analysts are warning that further gains may be hard to achieve this quarter amid headwinds such as China-U.S. trade tensions.

According to a recent Bloomberg survey of strategists, the average year-end target for the Stoxx 600 is 560, about 2% below Thursday’s closing level of 571.66. So far in 2025, the index has risen approximately 41%, outperforming the U.S. S&P 500’s 13% gain.

Citi noted that fresh developments from China, combined with earnings season, will drive volatility in European markets — but it remains optimistic about mid-2026 outlooks, emphasizing that sustained earnings growth remains key to further stock gains.

Société Générale believes that due to political and geopolitical uncertainty, coupled with a lack of positive earnings momentum, markets will face pressure toward year-end. The firm set its 2025 Stoxx 600 target at just 530 points.

However, similar to Citi, SocGen maintains a positive view on European stocks in 2026, supported by expected fiscal stimulus and continued accommodative monetary policy.