European weekly data update: Earnings growth remains strong, but sector divergence is pronounced and valuations are at elevated historical percentiles

Overview

This is a data-focused weekly report on European markets published during the summer and is not centered on any single company. Through earnings growth and revisions, sector and style performance, thematic baskets, valuations, fund flows, volatility characteristics, geographic sales exposure, and macro indicators, the report illustrates the cross-sectional divergence within European equities; the available materials do not provide a unified European index rating or target price.

Core views

The report first places European markets within a global cross-asset framework, examining one-week and year-to-date total returns in euro terms and summarizing Goldman Sachs forecasts for indices and asset classes as well as valuation metrics across regions. It then shifts its analytical focus to European equities, including the relative performance of sectors, styles, thematic baskets, and subsectors. Because this is a “Data only update,” the core information comes primarily from tables and charts rather than a single directional thesis. At the earnings level, STOXX Europe 600 EPS growth is 17.3% for 2026E and 9.0% for 2027E, with a 2026–2027 CAGR of 13.1%; forecasts for 2026E and 2027E have been revised up 0.8% and 0.2%, respectively, over the past month and 6.4% and 3.6%, respectively, year to date. Goldman Sachs' top-down forecasts are for 15% growth in 2026 and 5% in 2027, with a two-year CAGR of 10%, below the aggregate forecasts in the table. Excluding Financials and Real Estate, growth is 21.0% for 2026E and 8.5% for 2027E, with a CAGR of 14.6%; excluding Commodities, growth is 11.5% and 11.9%, respectively, with a CAGR of 11.7%. This comparison shows that the index's relatively high overall growth rate in 2026 is driven to some extent by commodity-related sectors, while the growth trajectory excluding Commodities is more stable. Sector earnings vary widely. Energy EPS grows 81.5% in 2026E but declines 14.3% in 2027E, for a CAGR of 24.7%; forecasts have been revised up 4.0% and 0.8%, respectively, over the past month and 66.4% and 24.2%, respectively, year to date. Basic Resources grows 49.7% in 2026E and 12.2% in 2027E, for a CAGR of 29.6%, but forecasts have been revised down 0.2% and 1.6%, respectively, over the past month, while remaining up 17.5% and 17.9%, respectively, year to date. Technology grows 28.8% and 26.6% over the two years, for a CAGR of 27.7%; over the past month, its forecasts have been revised up 0.1% and left unchanged, while year-to-date revisions are up 15.2% and 22.3%. Automobiles & Parts grows 29.7% and 24.0%, for a CAGR of 26.8%; its 2026E revision is not comparable, while its 2027E forecast has been revised down 3.5% over the past month and 24.2% year to date. Industrial Goods & Services grows 18.8% and 16.4%, for a CAGR of 17.6%, with forecasts revised up 1.3% and 1.7%, respectively, over the past month. Growth and revisions in other sectors are also divergent. Consumer Products & Services grows 13.3% and 15.1% over the two years, but forecasts have been revised down 5.1% and 5.2%, respectively, year to date; Construction & Materials grows 13.6% and 12.5%, with forecasts revised up 0.7% and 1.3% over the past month but still down 3.5% and 1.9% year to date; Banks grows 11.3% and 13.9%, with both forecasts revised up 0.8% over the past month and 5.2% and 7.6%, respectively, year to date; Chemicals grows 21.2% and 3.6%, with forecasts revised up 0.9% and 0.5% over the past month, but the 2027E forecast is down 3.8% year to date. Telecommunications grows 11.5% and 11.4%, Retail grows 9.5% and 10.7%, and Utilities grows 10.3% and 7.2%; forecasts for all three remain positive overall over the past month. Weaker sectors include Travel & Leisure and some service industries. Travel & Leisure EPS declines 5.3% in 2026E and grows 16.5% in 2027E, for a two-year CAGR of 5.1%; forecasts have been revised down 1.6% and 1.9%, respectively, over the past month and 16.4% and 13.0%, respectively, year to date. Financial Services grows 16.0% in 2026E and declines 1.0% in 2027E, with the 2026E forecast revised up 13.9% year to date and the 2027E forecast revised down 2.2%. Real Estate grows only 2.3% and 4.2% over the two years, with forecasts revised down 0.2% and 0.3%, respectively, over the past month. Media and Personal Care, Drug & Grocery Stores have also seen continued downward revisions: Media has been revised down 0.9% and 1.3% over the past month, while Personal Care, Drug & Grocery Stores has been revised down 0.6% and 0.5%; the latter's forecasts for both years are down 4.2% year to date. Health Care grows 5.7% and 8.7% in 2026E and 2027E, but its 2027E forecast has been revised down 0.9% over the past month, and its forecasts for the two years are down 0.9% and 2.1% year to date. The sector allocation table does not provide an overall market rating but instead expresses relative preferences. The listed overweight sectors include Banks, Construction & Materials, Food, Beverage & Tobacco, Personal Care, Drug & Grocery Stores, Retail, Technology, Telecommunications, and Travel & Leisure; neutral sectors include Health Care, Basic Resources, Energy, Financial Services, Industrial Goods & Services, Insurance, Real Estate, and Defense; underweight sectors include Automobiles & Parts, Chemicals, Consumer Products & Services, Media, Property & Casualty Insurance, Steel, Aerospace, Utilities, and Renewable Energy. Trading themes also include Capital Intensive versus Capital Light, Fiscal Infrastructure, and a comparison of High Labor Costs against the SXXE excluding Financials basket. The style and thematic section examines internal market rotation from multiple perspectives. Cyclicals are defined as an equal-weighted basket of Industrials, Financials, and Consumer Discretionary, while Defensives are defined as an equal-weighted basket of Utilities, Health Care, Communication Services, and Consumer Staples. The report also compares MSCI Value versus Growth and Momentum versus the market, and measures small-cap versus large-cap performance using the US Russell 2000 relative to the S&P 500 and Europe's STOXX Small relative to STOXX Europe Large. Thematic baskets are categorized by international sales exposure, domestic sales exposure, shareholder returns, and fundamental themes, with one-week and year-to-date relative performance, valuation metrics, and subsector performance presented, although the input materials do not retain the specific return readings from these charts. On valuation, several European STOXX 600 metrics are at elevated historical percentiles since 2000: 12-month forward EV/Sales is 2.0x, at the 93rd percentile; EV/EBITDA is 8.7x, at the 86th percentile; price-to-book is 2.3x, at the 94th percentile; 12-month forward P/E is 14.7x, at the 73rd percentile; 12-month forward free cash flow yield is 5.1%, at the 81st percentile; cyclically adjusted P/E is 20.0x, at the 79th percentile; and the market-implied equity risk premium is 3.7%, at the 77th percentile. The report states that a high percentile represents a high valuation. Against the interest-rate and credit backdrop, the German 10-year government bond yield is 3.2% and the UK 10-year government bond yield is 5.1%; high-yield bond yield to maturity is 6.0%, while investment-grade bond yield to maturity is 3.8%, with high-yield and investment-grade spreads of 256 basis points and 91 basis points, respectively. Geographic sales exposure shows that European indices are not equivalent to purely domestic European revenue. Europe accounts for 42% of STOXX Europe 600 sales, North America 24%, Asia Pacific 19%, and Emerging Markets 15%; the corresponding shares for the Euro Stoxx 50 are 39%, 21%, 22%, and 18%. The FTSE 100's domestic UK exposure is only 24%, with 14% from the rest of Europe, 28% from North America, 23% from Asia Pacific, and 11% from Emerging Markets; the FTSE 250 has higher domestic UK exposure at 56%, followed by 13% from Europe, 14% from North America, 8% from Asia Pacific, and 10% from Emerging Markets. The DAX has exposure of 20% to domestic Germany, 25% to the rest of Europe, 25% to North America, 16% to Asia Pacific, and 14% to Emerging Markets; the corresponding figures for the MDAX are 32%, 24%, 17%, 14%, and 14%. The CAC's domestic France exposure is 16%, with 24% from the rest of Europe, 25% from North America, 19% from Asia Pacific, and 16% from Emerging Markets; the SMI's domestic Switzerland exposure is only 6%, while its North American exposure is 36%. The MIB's domestic Italy exposure is 51%; the IBEX's domestic Spain exposure is 32%, while its Emerging Markets exposure is 27%; the AEX's domestic Netherlands exposure is 9%, while its Asia Pacific exposure is 38%; and the MSCI Nordic Countries Index has exposure of 24% to domestic markets, 22% to the rest of Europe, 28% to North America, 14% to Asia Pacific, and 13% to Emerging Markets. Consequently, each index has different sensitivities to local economies, US dollar interest rates, the euro exchange rate, and global demand. Finally, the report links market performance with macro and flow variables: it compares year-on-year STOXX Europe 600 performance with the European Composite PMI, Cyclicals relative to Defensives with the PMI, European Value relative to Growth with the US 10-year Treasury yield, and European small caps relative to large caps with EUR/USD. On flows, it uses the EPFR country fund-flow database to examine one-month rolling weekly flows from global investors into European equities, calendarized fund flows, and flows from foreign and domestic investors into developed European equities, while also presenting euro-area equity ownership. The market structure section tracks three-month 25-delta normalized skew, the STOXX Europe 600's six-month average monthly return dispersion, one-month average pairwise correlation, and five-year weekly cross-asset correlations of European sector relative returns. The macro section summarizes real GDP forecasts, the Goldman Sachs Current Activity Index, the Macro-data Assessment Platform economic surprise index, and the Goldman Sachs Financial Conditions Index to jointly assess changes in growth, data surprises, and financial conditions. The available input does not provide the latest specific readings from these charts, so the report can confirm the monitoring framework but cannot be used to infer numerical directions.

Analysis framework

The report first establishes the market backdrop using euro-denominated global cross-asset returns and Goldman Sachs forecasts, then drills down into European equity earnings growth, forecast revisions, and relative sector recommendations. It subsequently examines market rotation through style baskets such as Cyclicals/Defensives, Value/Growth, small caps/large caps, and Momentum, while comparing thematic baskets and subsector performance. Finally, it cross-validates the European market environment using historical valuation percentiles, fund flows, volatility and correlations, geographic sales exposure, and Goldman Sachs' proprietary macro indicators. The overall approach is a data-dashboard update rather than an earnings forecast and target price framework centered on a single company.

Methodology notes

• Sector/Industry Analysis FrameworkVolume-price decomposition

  Decomposition of EPS growth and forecast revisions

  The report separately presents each sector's 2026E and 2027E EPS growth, two-year CAGR, revisions over the past month, and year-to-date revisions to distinguish earnings levels, growth sustainability, and changes in expectations.

• Quantitative/Factor/Portfolio TheoryStyle factor analysis

  Relative performance of Cyclicals versus Defensives, Value versus Growth, small caps versus large caps, and Momentum

  The report constructs or references the relative price performance of style indices to observe which styles are driving European equity returns; both the Cyclical and Defensive baskets use equal weighting across specified sectors.

• Valuation MethodPE/PEG valuation

  12-month forward P/E and cyclically adjusted P/E

  The report uses 12-month forward P/E and cyclically adjusted P/E to measure European market valuations and compares current readings with the historical distribution since 2000.

• Valuation MethodEV/EBITDA valuation

  12-month forward EV/EBITDA

  The report uses enterprise value relative to 12-month forward EBITDA and combines it with historical percentiles to assess the current valuation level.

• Event-Driven Strategy and Behavioral FinanceFund Flow/Positioning Analysis

  EPFR European equity fund flows

  The report examines weekly flows, one-month rolling totals, and calendarized flows from global, foreign, and domestic investors into European equities to characterize changes in investor allocation.

• Quantitative/Factor/Portfolio Theory

  Analysis of return dispersion, skew, and pairwise correlations

  The report uses normalized skew, cross-sectional return dispersion, and average pairwise correlation to measure tail pricing, stock-level differentiation, and the degree of common movement.

• Sector/Industry Analysis Framework

  Decomposition of index geographic sales exposure

  The report decomposes the sales sources of European index constituents across domestic markets, the rest of Europe, North America, Asia Pacific, and Emerging Markets to illustrate index exposure to demand and macro variables in different regions.

Asset mapping & comparison

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

• STOXX Europe 600 (SXXP)

  The report's core European equity benchmark, used for analysis of earnings, sector performance, valuation, fund flows, dispersion, and sales exposure.

  Strengths

  2026E EPS is expected to grow 17.3%, with earnings forecasts revised up both over the past month and year to date.

  Weaknesses

  2027E EPS growth slows to 9.0%, and several valuation metrics are at elevated historical percentiles.

  Comparison

  Excluding Financials and Real Estate, 2026E growth rises to 21.0%; excluding Commodities, it falls to 11.5%.

• European Banks (SX7P)

  Included among Goldman Sachs' sector overweights.

  Strengths

  2026E and 2027E EPS are expected to grow 11.3% and 13.9%, respectively, with both forecasts revised up 0.8% over the past month.

  Comparison

  2026E and 2027E forecasts have been revised up 5.2% and 7.6%, respectively, year to date.

• European Technology (SX8P)

  Included among Goldman Sachs' sector overweights.

  Strengths

  2026E and 2027E EPS are expected to grow 28.8% and 26.6%, respectively, with a two-year CAGR of 27.7%.

  Weaknesses

  The 2027E forecast was unchanged over the past month, with no further upward revision.

  Comparison

  2026E and 2027E forecasts have been revised up 15.2% and 22.3%, respectively, year to date.

• European Automobiles & Parts (SXAP)

  Included among Goldman Sachs' sector underweights.

  Strengths

  2026E and 2027E EPS are expected to grow 29.7% and 24.0%, respectively.

  Weaknesses

  The 2027E forecast has been revised down 3.5% over the past month and 24.2% year to date.

  Comparison

  The earnings growth readings are high, but forecast revisions are significantly weaker than in sectors such as Technology.

• Capital Intensive versus Capital Light (GSSTCAPl／GSSTCAPL)

  A relative trading theme presented in the report.

  Comparison

  Compares the Capital Intensive basket with the Capital Light basket on a relative basis.

Key data

• STOXX Europe 600 EPS growth2026E 17.3%; 2027E 9.0%; 2026–2027 CAGR 13.1%Revised up 0.8% and 0.2%, respectively, over the past month and 6.4% and 3.6%, respectively, year to date
• Goldman Sachs top-down STOXX Europe 600 forecast2026E 15%; 2027E 5%; CAGR 10%Below the sector aggregates of 17.3%, 9.0%, and 13.1% in the table
• Energy EPS growth2026E 81.5%; 2027E -14.3%; CAGR 24.7%2026E and 2027E forecasts have been revised up 66.4% and 24.2%, respectively, year to date
• Basic Resources EPS growth2026E 49.7%; 2027E 12.2%; CAGR 29.6%Revised down 0.2% and 1.6%, respectively, over the past month
• Technology EPS growth2026E 28.8%; 2027E 26.6%; CAGR 27.7%Revised up 15.2% and 22.3%, respectively, year to date
• Travel & Leisure EPS growth2026E -5.3%; 2027E 16.5%; CAGR 5.1%Revised down 16.4% and 13.0%, respectively, year to date
• STOXX Europe 600 12-month forward P/E14.7xAt the 73rd historical percentile since 2000
• STOXX Europe 600 12-month forward EV/Sales2.0xAt the 93rd historical percentile since 2000
• Market-implied equity risk premium3.7%At the 77th historical percentile since 2000
• European interest-rate and credit metricsGerman 10-year 3.2%; UK 10-year 5.1%; high-yield bond YTM 6.0%; investment-grade bond YTM 3.8%High-yield and investment-grade bond spreads are 256 basis points and 91 basis points, respectively
• STOXX Europe 600 sales exposureEurope 42%; North America 24%; Asia Pacific 19%; Emerging Markets 15%Indicates that the index's revenue sources have distinctly global characteristics
• FTSE 100 sales exposureUK 24%; rest of Europe 14%; North America 28%; Asia Pacific 23%; Emerging Markets 11%The share of domestic UK revenue is below the FTSE 250's 56%

Impact & implications

The report's data set shows that European equity earnings growth is not broad-based: Energy, Basic Resources, and Technology make strong contributions, while Travel & Leisure, Real Estate, and some service sectors exhibit weaker growth or revisions. Meanwhile, several STOXX Europe 600 valuation metrics are at elevated historical percentiles, so sector selection needs to consider earnings growth, forecast revisions, and valuation simultaneously. The highly global nature of European indices' sales sources also means European market performance has clear links to demand in North America, Asia Pacific, and Emerging Markets, as well as to US interest rates and EUR/USD.

What to watch

• Track monthly and year-to-date revisions to 2026E and 2027E EPS forecasts for the STOXX Europe 600 and its sectors.
• Monitor changes in the relationship between the European Composite PMI and the STOXX Europe 600, as well as Cyclicals relative to Defensives.
• Track the linkage between the US 10-year Treasury yield and European Value relative to Growth.
• Monitor changes in the relationship between EUR/USD and European small caps relative to large caps.
• Track one-month rolling EPFR European equity fund flows and flows from foreign and domestic investors.
• Monitor changes in normalized skew, return dispersion, and average pairwise correlation.
• Track real GDP forecasts, the Current Activity Index, the MAP economic surprise index, and the Goldman Sachs Financial Conditions Index.