Global earnings delivery was strong, but earnings beats did not fully translate into share-price gains

Overview

As of the report date, the Q2 earnings season in the United States and Europe had entered its later stages, with about 80% to 85% of companies having reported. Overall earnings delivery was strong, with positive earnings surprises across regions and a clear rise in the proportion of companies beating expectations. Earnings and revenue growth in the United States and Europe both exceeded expectations, while Japanese companies recorded even higher net profit growth. However, strong fundamentals did not deliver comparable share-price returns, indicating that the market had already priced in elevated expectations.

Core views

S&P500 Q2 earnings grew 25% YoY, with revenue up 14%; Stoxx600 earnings grew 23%, with revenue up 10%. The earnings growth gap between the United States and Europe has narrowed significantly, with the median company earnings growth rate in both regions at 12%. Energy was an important driver of earnings growth in both regions, while financials and technology also made significant contributions; excluding energy, earnings still grew 19% in the United States and 13% in Europe, indicating that growth was not entirely dependent on energy. U.S. cyclicals continued to lead defensives in earnings growth. After adjusting for revaluation gains from Amazon and Alphabet’s private and strategic equity investments, Mag-7 earnings growth excluding Nvidia was slightly below that of S&P500 non-Mag-7 companies for the first time since 2022. Despite solid earnings performance, share-price reactions for companies beating expectations remained limited, especially in technology.

Analysis framework

The report divides markets into the United States, Europe, the Eurozone, and Japan, comparing reporting progress, the proportion of earnings or net profit beats, the magnitude of earnings surprises, YoY earnings growth, the proportion of revenue beats, and YoY revenue growth. It also cross-validates from perspectives including sector contributions, growth excluding energy, cyclical versus defensive styles, Mag-7 versus other constituents, changes in earnings guidance, and relative share-price performance after results announcements.

Methodology notes

• Earnings-season monitoringEarnings beat breadth analysis

  Measures the breadth of earnings delivery by the proportion of reported companies whose earnings and revenue exceeded market expectations.

  This method simultaneously observes the share of companies beating expectations, the magnitude of surprises, and YoY growth, avoiding aggregate data driven by only a few large companies from obscuring overall performance.

• Regional comparisonComparison of aggregate and median earnings growth

  Compares both overall index earnings growth and the median earnings growth of constituent companies.

  Overall earnings grew 25% in the United States and 23% in Europe, while the median was 12% in both regions, indicating that the regional gap has narrowed, although aggregate index figures remain affected by large-company composition.

• Sector attributionEarnings analysis excluding energy

  Evaluates underlying earnings growth after excluding the energy sector, which was significantly boosted by rising energy prices.

  Earnings excluding energy still grew 19% in the United States and 13% in Europe, showing that earnings improvement had a degree of breadth, although energy remained an important amplifier of overall growth.

• Style analysisComparison of cyclical and defensive sectors

  Compares earnings and revenue growth as well as beat rates between cyclical and defensive sectors.

  U.S. cyclical-sector earnings grew 30%, significantly higher than the 7% growth in defensives; European cyclical and defensive-sector earnings grew 10% and 7%, respectively.

• Market reactionRelative share-price performance after results announcements

  Observes the short-term relative market performance of companies that beat or missed earnings expectations after results announcements.

  Share-price rewards for earnings beats this season were relatively limited, reflecting that high expectations, crowded positioning, and investor focus on capital expenditure may have suppressed valuation reactions.

Asset mapping & comparison

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

• S&P500

  Core benchmark for the U.S. Q2 earnings season

  Strengths

  Earnings and revenue growth were strong, earnings beats were broad-based, and the proportion of companies raising earnings guidance was at a high since 2021.

  Weaknesses

  Market expectations were already high, and short-term share-price rewards corresponding to strong results were limited.

  Comparison

  Overall earnings grew 25%, slightly above the Stoxx600’s 23%; excluding energy, growth was 19%, also higher than Europe’s 13%.

  Risks

  High valuations, crowded positioning, rising capital expenditure, and difficulty in continuing to upgrade future expectations.

• Stoxx600

  Core benchmark for the European Q2 earnings season

  Strengths

  Earnings grew 23%, the beat rate was above historical levels, and earnings performance was healthy in most sectors except consumer discretionary.

  Weaknesses

  The proportion of earnings beats was lower than in the United States, and growth excluding energy fell to 13%.

  Comparison

  Overall earnings growth was close to that of the United States, and the median company earnings growth rate was the same as the United States at 12%.

  Risks

  Dependence on energy-price contributions, weakness in consumer discretionary, and insufficient revenue growth in some sectors.

• Euro Stoxx

  Benchmark for observing Eurozone Q2 results

  Strengths

  65% of companies beat earnings expectations, and the proportion of revenue beats rose significantly this quarter.

  Weaknesses

  Earnings growth of 17% and revenue growth of 7% were both below the broader Stoxx600.

  Comparison

  Performance was weaker than the Stoxx600, but earnings and revenue still maintained positive growth.

  Risks

  Declining earnings in consumer discretionary, negative or flat revenue growth in some sectors, and slowing macro demand.

• TSE Prime

  Benchmark for observing Japan’s Q1 earnings season

  Strengths

  Net profit grew 64%, 71% of companies beat net profit expectations, and the vast majority of sectors achieved positive growth.

  Weaknesses

  Only 66% of companies had reported, so current aggregate results may still change significantly.

  Comparison

  Reported net profit growth was significantly higher than in the U.S. and European markets.

  Risks

  Low reporting completion, base effects, and the impact of a few high-growth sectors on the aggregate.

• Energy stocks

  Main source of contribution to U.S. and European earnings growth

  Strengths

  Conflict-driven increases in energy prices supported substantial revenue and earnings growth.

  Weaknesses

  Earnings improvement was highly correlated with external price shocks, making it less sustainable than endogenous growth.

  Comparison

  Excluding energy, U.S. and European earnings growth fell from 25% and 23% to 19% and 13%, respectively.

  Risks

  Easing geopolitical conflict, falling energy prices, and a high base may cause the earnings contribution to weaken rapidly.

• Technology stocks and Mag-7

  Important drivers of U.S. earnings growth and market expectations

  Strengths

  The technology sector remains one of the main contributors to U.S. earnings growth.

  Weaknesses

  Positioning in the sector is crowded, and the market is highly focused on capital expenditure, leading to weak share-price performance after earnings beats.

  Comparison

  After adjusting for revaluation gains from Amazon and Alphabet’s strategic equity investments, Mag-7 earnings growth excluding Nvidia was slightly below that of S&P500 non-Mag-7 companies for the first time since 2022.

  Risks

  Capital expenditure returns falling short of expectations, valuation compression, reversal of crowded trades, and continued narrowing of the earnings growth advantage.

Key data

• S&P500 Q2 results84% reported; 88% beat earnings expectations; earnings up 25% YoY; revenue up 14% YoY70% of companies had revenue above expectations, and the positive earnings surprise was 11 percentage points.
• Stoxx600 Q2 results78% reported; 63% beat earnings expectations; earnings up 23% YoY; revenue up 10% YoYThe positive earnings surprise was 5 percentage points, and 64% of companies had revenue above expectations.
• Euro Stoxx Q2 results80% reported; 65% beat earnings expectations; earnings up 17% YoY; revenue up 7% YoYOverall earnings growth was 1 percentage point above consensus expectations, and 66% of companies had revenue above expectations.
• Japan TSE Prime Q1 results66% reported; 71% beat net profit expectations; net profit up 64% YoY; revenue up 14% YoY68% of companies had revenue above expectations, and 13 of the 15 reported sectors achieved positive earnings growth.
• Median earnings growth in the United States and EuropeUnited States 12%; Europe 12%The median measure shows that the gap in corporate earnings growth between the two regions has narrowed significantly.
• Earnings growth excluding energyUnited States 19%; Europe 13%Energy prices rose due to conflict, significantly amplifying overall earnings growth in both regions.
• U.S. cyclicals and defensivesCyclical-sector earnings up 30%; defensive-sector earnings up 7%Cyclical-sector revenue grew 13%, while defensive-sector revenue grew 9%.
• U.S. earnings guidanceThe proportion of companies raising earnings outlooks was the highest since 2021Only U.S. companies that provided guidance data were included.

Impact & implications

The earnings results support the resilience of global corporate earnings fundamentals and indicate that the United States’ earnings growth advantage over Europe is narrowing. Energy, financials, and technology remain the main sources of earnings, while the leading performance of U.S. cyclicals is favorable for continued risk appetite. However, earnings beats did not produce clear share-price rewards, implying that future returns will depend more on the persistence of expectation upgrades, capital expenditure efficiency, and whether valuations can be absorbed. For technology and Mag-7, merely meeting or slightly exceeding expectations may not be enough to drive further re-rating.

Risks

• Around 20% of companies in the United States and Europe have yet to report, and about one-third of Japanese companies have yet to report, so final results may change.
• Energy-sector earnings are supported by conflict-driven price increases; if energy prices fall, overall earnings growth may decline significantly.
• Market expectations and technology-sector positioning are already at elevated levels, so even earnings beats may fail to generate positive share-price reactions.
• Investor focus on the scale and payback period of technology companies’ capital expenditure is increasing, which may suppress valuations.
• Revaluation gains from Amazon and Alphabet’s strategic equity investments can distort Mag-7 earnings comparisons, requiring the use of adjusted measures.
• European consumer discretionary earnings declined YoY, indicating that some end demand remains weak.
• This report does not provide valuation targets or individual stock ratings, and specific investment returns cannot be inferred solely from earnings growth data.

What to watch

• Whether the results of companies yet to report maintain the current earnings beat rate.
• Whether the trend of U.S. companies raising earnings guidance can continue into the next quarter.
• Whether 2026 and 2027 consensus earnings expectations across regions continue to be revised upward.
• Changes in energy prices and whether underlying earnings growth excluding energy can be maintained.
• Technology companies’ capital expenditure guidance, returns on investment, and share-price reactions after results announcements.
• The earnings growth gap between Mag-7 and S&P500 non-Mag-7 companies.
• Whether the earnings leadership of U.S. cyclicals over defensives can persist.
• Whether European consumer discretionary and other sectors with weak revenue show improvement.