European investors have remained unfazed by recent geopolitical events, with markets nearing fair value leaving little cushion against potential downturns. Small-cap stocks, consumer defensive, and healthcare sectors present opportunities for investors. Despite escalating global tensions, stock markets continue to climb to record highs, causing concerns about market exuberance or ignorance of looming risks. European markets are currently fairly valued, offering neither cheap nor expensive opportunities. The margin of safety seen in previous years has diminished, with small-cap stocks providing a valuation buffer against market volatility. Small-cap stocks remain discounted compared to their fair value estimate, suggesting an optimistic economic outlook. Consumer defensive and healthcare stocks are attractive options, trading at discounts and showing positive momentum. Financial services and utilities sectors are facing overvaluation, making consumer defensive and healthcare sectors more appealing. Healthcare stocks are rebounding as tariff threats ease, offering potential for valuation improvement.

Read more at Morningstar: European Stock Market 2026 Outlook: Investors Are Bullish But Risks Are Rising