European Stock Market Earnings Season Preview: Strong Macro Support, But Earnings Realization Threshold Elevated

Overview

This report is Goldman Sachs' Europe market weekly report, focusing on previewing the H1 2026 earnings of STOXX 600 index constituents to be disclosed in late July to August. The report points out that although macro fundamentals (such as current account, PMI, exchange rates) support the stock market, due to the significant expansion of non-energy sector valuations previously, the market's expectation threshold for performance has been significantly raised. Investors need to closely monitor whether the high growth of the energy sector can continue, and whether the non-energy sector can realize the growth story behind high valuations under inflation and competitive pressure.

Core views

Earnings growth heavily relies on commodities. Consensus expects STOXX 600 index H1 2026 earnings YoY growth of 11%, but excluding commodity sectors, growth rate is only 6%. Among them, energy sector earnings expectations were significantly adjusted up 28% since Q2, mainly stemming from its strong margin performance and expectations of brief impact from Iran conflict. In contrast, non-commodity sector earnings and margin expectations have remained basically stable since early Q2. Valuation expansion raises performance thresholds. Since Q2, returns in sectors other than energy (especially banks and technology) were mainly driven by P/E re-rating, rather than actual earnings improvement. This valuation expansion makes market requirements for financial reports stricter; once earnings miss expectations or long-term growth prospects are unclear, stock prices may react more violently. Macro environment provides bottom support. Despite facing inflation pressures, the European macro environment remains benign. The current account remains robust, with Eurozone composite manufacturing PMI averaging 51.7 in Q2 (50.6 in Q1), showing manufacturing resilience. Additionally, the euro-dollar exchange rate in Q2 fell compared to the Q1 average, which usually benefits European enterprises with US dollar or overseas income, providing a gentle tailwind for the earnings season. Specific industry highlights and concerns. In the semiconductor sector, AI-driven memory chip shortages continue to support the mid-to-long term dynamics of European semiconductor equipment makers (such as ASML, ASMI, BESI). Samsung's investment and increased capital expenditure by memory clients bring additional tailwinds. In the energy sector, despite generous profits, investor focus is turning to capital expenditure prospects. Reinvestment is expected to rebound from structural lows, rather than converting into shareholder returns as dramatically as in 2022.

Analysis framework

The report adopts a progressively layered analysis framework of 'Macro-Meso-Micro'. Firstly, establish the market's overall liquidity and fundamental background by evaluating macro indicators such as current account, PMI, and exchange rates. Secondly, using price-volume breakdown and attribution analysis, decompose STOXX 600 returns into earnings growth and valuation expansion components, identifying that the rise in non-energy sectors mainly stems from valuation rather than performance, thereby deriving the core viewpoint of 'High Threshold'. Finally, combining industry-specific supply-demand logic (e.g., semiconductor AI demand, energy capex cycle) and geopolitical factors (Iran conflict), predict the direction of earnings revisions for key sectors.

Methodology notes

• Industry/Industrial Analysis FrameworkEarnings and Valuation Breakdown

  Decompose stock returns into two drivers: earnings growth (EPS) and valuation change (PE).

  The report used this method to find that the rise in non-energy sectors was mainly from PE expansion, thus judging high pressure on earnings realization, helping investors identify if the market driver is fundamentals or sentiment.

• Business Cycle and Prosperity FrameworkProsperity Turning Point Analysis

  Judge the stage of industry through PMI, inventory, and capital expenditure cycles.

  The report referenced manufacturing PMI data to judge European industrial prosperity, and pointed out that the energy sector entered an upward capital expenditure cycle, helping to understand future supply changes and profit distribution logic of the industry.

Asset mapping & comparison

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

• ASML (ASML.US)

  Benefiting from AI-driven memory chip shortage and increased Samsung capex

  Strengths

  Leading lithography technology, benefiting from semiconductor expansion cycle

  Comparison

  Belongs to European semiconductor equipment merchants benefiting alongside ASMI and BESI

  Risks

  Volatility in global semiconductor capital expenditure

• Aker BP

  Energy sector representative, focus on its capital expenditure outlook

  Strengths

  Margin resilience, earnings expectation adjusted up

  Weaknesses

  Shareholder returns may not be as generous as 2022

  Risks

  Oil price volatility, capital expenditure increase squeezing free cash flow

• Var Energi

  Energy sector representative, focus on its capital expenditure outlook

Key data

• STOXX 600 H1 2026 Earnings Growth Expectation11%YoY growth rate, mainly driven by commodities
• Earnings Growth Rate Excluding Commodities6%Reflects actual earnings growth capability of non-energy sectors
• Energy Sector Earnings Expectation Adjustment Magnitude28%Cumulative adjustment magnitude since Q2 2026
• Q2 Manufacturing PMI Average51.7Higher than Q1's 50.6, showing manufacturing resilience

Impact & implications

For investors, this means volatility during earnings season may increase. Investors holding energy stocks need to focus on capital expenditure guidance rather than dividend expectations alone; investors holding tech and bank stocks need to beware of valuation correction risks, as stock prices have already reflected optimistic expectations beforehand. Macroeuro weakness and PMI recovery provide a safety cushion for the market, but differentiation at the individual stock level will intensify, and earnings certainty will become the core standard for short-term capital allocation.

Risks

• Extent of energy price shock transmission to downstream value chain exceeds expectations
• European companies face intensified competition from China
• AI application implementation and cost reduction effects fall short of management guidance
• Non-energy sector earnings fail to match high valuations causing stock price correction

What to watch

• Disclosure progress and quality of earnings in last week of July and August
• Capital expenditure (Capex) guidance of energy sector
• Management discussion on AI usage and related cost savings
• Sustainability of Eurozone manufacturing PMI