Earnings Momentum Strengthens in Europe and the United States, While Market Risk Appetite Remains High
AI summary card
Earnings Momentum Strengthens in Europe and the United States, While Market Risk Appetite Remains High
Goldman Sachs believes earnings growth among European and U.S. companies is strong and becoming more broad-based, and has upgraded its European equity outlook; U.S. earnings are also resilient, but AI-related gains remain concentrated primarily among infrastructure beneficiaries.
- Goldman Sachs raised its FY26 STOXX 600 EPS growth forecast to 15% and its 12-month target to 695.
- S&P 500 EPS growth is tracking 31% year over year, with roughly half driven by AI infrastructure stocks; median-company EPS growth is 14%.
- Japanese, EM, and Asia ex-Japan equities each rose 2.6% last week; the KOSPI rebounded 11.5% in one week following prior declines.
- The risk-appetite indicator remains above 1.0; the energy sector gained 5.1%, while Brent crude rose 5.9% over the same period.
Report interpretation
Overview
This report is a weekly global market strategy update focusing on corporate earnings in Europe and the United States, regional equity performance, risk appetite, and upcoming macroeconomic data. Goldman Sachs believes both Europe and the United States exhibit strong earnings momentum, supporting risk-asset performance.
Core views
European earnings growth is strong and broadening, prompting Goldman Sachs to raise its FY26 STOXX 600 earnings forecast and 12-month target. S&P 500 earnings growth is similarly strong, but around half of the growth comes from AI infrastructure stocks; earnings for the broader corporate universe remain resilient. Despite accelerating AI spending, relatively few companies have been able to quantify productivity gains, leading investors to focus more on AI infrastructure beneficiaries.
Analysis framework
The report evaluates the global equity market's growth and risk environment using weekly and year-to-date MSCI index performance, earnings forecasts and revisions, forward valuations, style factors, cross-asset correlations, fund flows, and risk-sentiment indicators.
Methodology notes
GS RAI
Based on 27 pairs of cross-asset trades and calculated as z-scores relative to performance over the past two years; a reading above 1.0 is interpreted in the report as indicating continued strong risk appetite.
EPS Growth, Upgrades and Downgrades
Compares earnings trends across regions and sectors through top-down forecasts and bottom-up consensus estimates, earnings growth, earnings revisions, and earnings-sentiment indicators.
12-Month and 24-Month Forward P/E
Uses forward P/E ratios for MSCI regional, sector, and style indices and assesses valuation levels relative to historical ranges.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- European Equities (STOXX 600)Benefiting from strong and broadening earnings momentum
- Strengths
- FY26 earnings growth forecast raised to 15%, with the 12-month target raised to 695.
- Weaknesses
- The report does not provide a complete earnings distribution by specific sector or company.
- Comparison
- Compared with the United States, European earnings improvement is described as more broad-based.
- Risks
- Macroeconomic data, policy, and valuation changes may affect achievement of the target.
- U.S. Equities (S&P 500)Strong earnings growth, but concentrated AI-driven contribution
- Strengths
- Year-over-year EPS growth is tracking 31%; median-company EPS growth is 14%, and broad-based earnings remain resilient.
- Weaknesses
- Approximately half of index earnings growth is contributed by AI infrastructure stocks.
- Comparison
- Like Europe, it has strong earnings momentum, but its AI contribution is more concentrated.
- Risks
- Returns on AI investment have not yet been widely quantified, and changes in expectations for related leaders could amplify market volatility.
- Asian and Emerging-Market EquitiesStrong short-term market performance
- Strengths
- Japanese, EM, and Asia ex-Japan equities each rose 2.6% last week, while the Korean market rebounded notably.
- Weaknesses
- Performance divergence across regions is significant, with some markets declining during the week.
- Comparison
- Outperformed some European and U.S. markets last week.
- Risks
- Macroeconomic data, trade, and currency movements may trigger regional volatility.
- Energy and Crude OilAssets benefiting from recovering risk appetite
- Strengths
- The energy sector rose 5.1%, while Brent crude gained 5.9%.
- Weaknesses
- The report does not explain the durability of the upside drivers.
- Comparison
- Last week's performance showed reversal characteristics similar to those following previous weak performance.
- Risks
- Commodity prices are vulnerable to supply-demand conditions, geopolitics, and macroeconomic expectations.
Key data
- FY26 STOXX 600 EPS Growth Forecast15%Goldman Sachs' revised forecast.
- STOXX 600 12-Month Target695Reflects strong and broadening earnings momentum.
- S&P 500 Tracked Year-over-Year EPS Growth31%Approximately half is driven by AI infrastructure stocks.
- U.S. Median-Company EPS Growth14%Indicates that broader earnings growth outside AI remains resilient.
- KOSPI Weekly Performance+11.5%A rebound following a 7.4% decline over the prior two weeks.
- Brent Crude Weekly Performance+5.9%The energy sector rose 5.1% over the same period.
Impact & implications
Earnings fundamentals support European and U.S. equities, with improving European earnings underpinning a more constructive allocation view. The resilience of the U.S. market's earnings is not entirely dependent on AI, but index-level growth contributions are highly concentrated in AI infrastructure stocks, implying that reliance on and crowding in the AI theme still warrant attention.
Risks
- The concentrated reliance of U.S. index earnings growth on AI infrastructure stocks may increase valuation and expectation-adjustment risks.
- Productivity and earnings gains from AI adoption have not yet been clearly quantified by most companies.
- Upcoming macroeconomic data from the United States, Europe, Japan, and Asia may alter expectations for growth, inflation, and monetary policy.
- Divergent regional and sector performance in global equity markets, together with oil-price volatility, may increase portfolio volatility.
What to watch
- U.S. import prices, the Philadelphia Fed Manufacturing Index, and the July FOMC meeting minutes.
- UK unemployment, CPI, and retail sales, as well as flash PMIs for France, Germany, the euro area, and the United Kingdom.
- Japan's second-quarter real GDP, July core CPI, and export data.
- China's July economic activity data, Thailand's second-quarter GDP, Korea's 20-day exports, Malaysia's CPI, and Bank Indonesia's policy meeting.
- Corporate quantitative disclosures on AI investment, productivity, and earnings contributions, as well as the breadth of earnings revisions.