Breaks two years of silence! Analysts have raised earnings forecasts for European stocks for 10 consecutive weeks, marking the fastest pace since 2024.

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European stock markets are rising and are now receiving new fundamental support.

After nearly two years of continuous downward revisions to earnings expectations, the earnings outlook for European companies has significantly improved. According to Citi's tracker for earnings expectation revisions, the number of upward revisions to European corporate earnings forecasts by analysts has exceeded downward revisions for ten consecutive weeks, marking the longest net upward revision in nearly two years. Meanwhile, Bloomberg Intelligence expects that European companies' earnings in Q2 this year will grow by 12% year-on-year, the fastest pace in more than three years.

The improvement in earnings expectations has prompted institutions to further raise their targets. Morgan Stanley has raised its forecast for MSCI Europe's 2026 earnings growth rate to 12.5% and expects about 10% upside for the index over the next 12 months. The capital side is also warming up; for the week ending July 8, European equity funds saw a net inflow of about $400 million, indicating that global capital is refocusing on European assets.

Earnings Expectations Up for Ten Weeks—Foundations for European Stocks’ Rally Await Testing

Following nearly two years of almost uninterrupted downward revisions, the direction of European companies’ earnings expectation revisions has undergone a substantial reversal. According to Citi's statistics based on Bloomberg data, European earnings expectations have been net revised upward for ten consecutive weeks, setting the record for the longest continuous rise since mid-2024.

However, Bloomberg simultaneously cautions that a similar round of upward revisions ended abruptly just weeks before earnings season two years ago and quickly turned downward. This precedent has left doubts about the sustainability of the current trend.

More crucially, expectations themselves are becoming a source of risk. Market pricing for earnings growth is currently at a high level; if actual earnings reports fail to meet expectations, downside pressure on stock prices will increase. In terms of sector structure, the energy sector benefits from relatively high oil prices, which is expected to support profits, while the banking sector is seen as an early beneficiary of the wave of AI adoption in Europe, with resilient earnings outlook continuing to emerge.

Asset management firm Natalia Milovets fund manager Marina Zavolock believes the market systematically misjudges European companies’ earnings. “The inflationary environment, AI penetration, and globally diversified revenue layouts together provide structural support for European corporate earnings,” she noted. “These factors are not yet fully priced in, leaving room for further upside in European stocks.”

In terms of market performance, after underperforming US stocks since March this year, the European Stoxx 600 outperformed the S&P 500 last month. One catalyst behind this was the temporary peace agreement between the US and Iran, which briefly eased geopolitical risk premiums; although geopolitical risks have recently risen again, current oil price levels remain significantly lower than during peak conflict.

Helen Jewell, Global Head of Fundamental Equity at BlackRock, pointed out: “Europe is currently better suited as a diversification tool within portfolios. AI-themed positions are already highly concentrated, while the industry breadth of European markets can effectively hedge against such crowded risks. In terms of earnings trends and corporate resilience, Europe is not at a disadvantage.”

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