European wealth managers have turned increasingly pessimistic on the region's stocks, with only seven of 22 surveyed firms maintaining an overweight position. This shift in sentiment marks a decline from the start of the year, when 10 respondents were positive and only one negative. Despite a strong market performance - the Stoxx Europe 600 Index has gained 13% this year with five straight monthly advances - analysts cite several factors contributing to the cautious outlook. Valuations, while still cheap relative to US peers, are seen as rich relative to historical averages, trading at 14.8 times forward earnings compared to a 20-year average of 13.4 times. Earnings growth expectations further dampen enthusiasm, with Stoxx 600 companies forecast to rise just 15% this year versus a 27% surge predicted for S&P 500 members.

Geopolitical risks and elevated bond yields continue to weigh on sentiment. Strategists at Barclays Private Bank and Deutsche Bank highlight concerns over potential economic disappointment and profit-taking. The region's exposure to geopolitical tensions, particularly in the Middle East, and elevated energy prices further complicate the outlook. While some firms like UBS have turned more bullish, forecasting close to 25% earnings growth over two years, the broader sentiment suggests investors are becoming increasingly selective, favoring value sectors and developing markets over European equities.