European Earnings Growth to Rival US for First Time in Years on Energy Windfall and Industrial Resilience

The Quick Take

• European corporate earnings growth is forecast to match US earnings growth for the first time in several years
• The convergence reflects European energy windfall profits and manufacturing resilience offsetting tech sector gaps
• Analysts expect the earnings parity to support European equity valuations, which trade at a discount to US counterparts

A notable shift in global equity market dynamics is emerging as European corporate earnings growth is projected to rival its US counterpart for the first time in years, according to analyst research flagged by Singapore's Business Times. The convergence is driven by two primary forces: European energy companies have generated windfall profits from the Iran conflict-driven oil price surge, and European industrials and financial companies have shown more resilience than expected. Meanwhile, the US earnings cycle faces headwinds from tech sector disappointments — including Alphabet and Amazon — that disproportionately weigh on S&P 500 earnings per share given technology's outsized index weight.

European earnings parity with the US creates a structural argument for European equity re-rating, as the region's indices trade at a significant historical discount on forward price-to-earnings multiples. The key mechanism driving the catch-up is sector composition: Europe's heavy weighting toward energy, banks, and industrials — sectors benefiting from the current economic environment — contrasts with the US market's heavy tech weighting, which is currently a headwind. HSBC, Deutsche Bank, and BNP Paribas have benefited from elevated net interest margins, while SAP and ASML represent European tech names that have maintained growth momentum. For Singapore and Asian investors, the European earnings recovery creates a portfolio diversification argument that has been absent for much of the 2020s.

Watch European earnings season reporting dates for the key energy and financial sector results that are driving the earnings growth convergence thesis. The EUR/USD rate is the key macro signal for European equity attractiveness from foreign investors' perspective — a stronger euro amplifies local currency returns for USD-based investors, while dollar-denominated European equity ETFs would see enhanced USD returns. MSCI Europe vs MSCI USA earnings revision ratio tracks whether analysts are upgrading European estimates faster than US ones, which is the fundamental validation metric for the convergence thesis.

Synthesized from 1 source.