European 1H/2Q26 results stronger than perceived by the market

Overview

This report is Goldman Sachs' Europe Weekly Kickstart, focusing on the European 1H/2Q26 earnings season. It notes that despite elevated expectations entering the earnings season, European companies have continued to clear the high bar, with earnings growth stronger than generally perceived by the market and improvements broadening from commodities to a wider range of sectors.

Core views

Key views include: the European earnings recovery is healthy and broadening; STOXX Europe 600 EPS surprises and earnings revisions are both positive; earnings sentiment has risen to its highest level in more than three years; the market is reacting more strongly to fundamental changes; Technology, Financials, and Commodities are leading, while consumer-related sectors are relatively under pressure.

Analysis framework

The report conducts top-down and cross-sector comparisons of European equity markets using equal-weighted and market-cap-weighted earnings and sales surprises, 2026-2027 EPS growth and revisions, sector and thematic basket performance, valuation, fund flows, volatility, correlations, and macroeconomic indicators.

Methodology notes

• Earnings analysisEarnings Surprise Tracking

  Tracking earnings surprises during the earnings season

  Compares actual EPS with market expectations for companies that have reported, examining both equal-weighted and market-cap-weighted measures to determine whether earnings surprises are driven by a small number of large-cap companies.

• Earnings revisionsEPS Revision and Earnings Sentiment

  Earnings revisions and earnings sentiment

  Measures earnings sentiment by subtracting the number of analyst downgrades from upgrades and dividing by the total number of estimates, while tracking one-month and year-to-date EPS revisions.

• Sector comparisonSector and Supersector Analysis

  Cross-sector comparison of European earnings and performance

  Compares EPS growth, earnings revisions, and market performance across STOXX Europe 600 sectors and supersectors to identify leading and lagging segments.

• Asset allocationCross-Asset and Valuation Dashboard

  Cross-asset, valuation, and fund-flow dashboard

  Combines European index valuations, thematic baskets, global fund flows, volatility, correlations, and macroeconomic data to assess the risk-reward environment for European equities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• STOXX Europe 600

  Core coverage index and gauge of the European earnings cycle

  Strengths

  Strong EPS beats and first-half earnings growth, with revisions broadening.

  Weaknesses

  Earnings contributions remain partly influenced by Commodities, while some consumer sectors weigh on overall breadth.

  Comparison

  Median company earnings growth is approximately +7%, close to the growth rate of median S&P 500 companies.

  Risks

  Energy supply shocks, weak consumer demand, valuation repricing, and macroeconomic slowdown.

• Technology

  One of the sources of positive earnings surprises

  Strengths

  Strong earnings surprises, with expected 2026E and 2027E EPS growth of 28.7% and 26.7%, respectively.

  Weaknesses

  Some AI-related stocks, such as ASML, Nokia, and ASM International, were not rewarded on results days despite exceeding expectations.

  Comparison

  Stronger earnings momentum and revisions than consumer sectors.

  Risks

  Crowded AI trades, valuation pressure, and divergent market reactions on results days.

• Financials

  An important contributor to earnings improvement and positive surprises

  Strengths

  The report identifies Financials as one of the strongest sources of positive surprises; Financial Services one-month 2026E EPS revisions reached +7.8%.

  Weaknesses

  Expected 2027E growth is weak in some financial subsectors, such as Financial Services, where 2027E EPS growth is -0.9%.

  Comparison

  More positive earnings revisions than consumer sectors.

  Risks

  The interest-rate path, credit cycle, and regulatory changes.

• Commodities / Energy / Basic Resources

  Important contributors to European earnings growth

  Strengths

  Commodities have made a significant contribution to overall earnings growth; 2026E EPS growth is 75.6% for Energy and 49.2% for Basic Resources.

  Weaknesses

  Basic Resources has seen relatively weak upward-revision breadth since the start of the earnings season, and momentum may slow in 2027E.

  Comparison

  STOXX 600 EPS growth remains approximately +7% excluding Commodities, indicating that non-commodity sectors are also improving.

  Risks

  Commodity-price volatility, energy supply shocks, and changes in global demand.

• Consumer sectors

  Main source of earnings disappointments

  Strengths

  Some consumer services continue to show positive growth in 2026E; for example, Consumer Prods and Srvs has 2026E EPS growth of 13.2%.

  Weaknesses

  The report says consumer sectors are the main source of disappointments, reflecting soft demand and a challenging consumption environment.

  Comparison

  Weaker earnings surprises and revisions than Technology, Financials, and Commodities.

  Risks

  Weak household consumption, cost pressures, and low confidence.

Key data

• STOXX Europe 600 reporting coverageNearly two-thirdsThe report says the busiest week has passed, with approximately one-third of companies reporting this week, bringing cumulative coverage close to two-thirds.
• Average EPS surpriseApproximately +3%Slightly above the long-term average.
• 1H EPS year-over-year growthApproximately +13%The report describes this as the strongest growth rate in three years.
• EPS growth excluding CommoditiesApproximately +7%Indicates that earnings improvement is not driven solely by the commodities sector.
• STOXX 600 2026E EPS growth16.6%The table reports 2026E EPS Growth; 2027E is 9.5%, and the 2026/2027 CAGR is 13.0%.
• STOXX 600 one-month EPS revisions2026E +1.4%, 2027E +0.9%The table reports STOXX 600 EPS revisions in euro terms.
• STOXX 600 2026E EPS growth excluding Commodities11.1%The table reports 2027E at 12.1%, with a 2026/2027 CAGR of 11.6%.
• Market reaction on results daysApproximately ±2%The report says the average market reward or penalty for earnings beats and misses is approximately 2%.

Impact & implications

If the broadening of European earnings revisions continues, the relatively pessimistic earnings narrative around European equities could be further revised, supporting investors in reassessing allocations to the STOXX Europe 600 and related sectors. At the sector level, Technology, Financials, and Commodities are benefiting from earnings surprises, while consumer-related sectors require signs of improving demand.

Risks

• Energy supply shocks could again weigh on European earnings.
• Weak consumer demand could weigh on consumer-related sectors.
• Crowded trading in AI-related technology stocks could result in no market reward even after earnings beats.
• If macroeconomic data or PMI weakens, cyclical stocks could underperform defensive stocks.
• Changes in exchange rates, interest rates, and fund flows could affect European equity valuations.
• This report is thematic and market strategy research and does not constitute independent investment advice on any individual security.

What to watch

• Whether the remaining STOXX Europe 600 companies continue to deliver EPS beats.
• Whether EPS revisions continue to spread from Technology, Financials, and Commodities to more sectors.
• Signs of improving demand in Consumer Discretionary and other consumer-related sectors.
• Changes in the European Composite PMI, GS Current Activity Index, and financial conditions indices.
• The one-month rolling trend in global investor inflows into European equity funds.
• Changes in 12-month forward P/E, ERP, and global valuation percentiles for European indices.