Could European stocks beat the US to the finish line?
The neck-and-neck race may just go to the underdog this year
That corporate America is in good health is by now clear. The bigger surprise is that fretful Europe is picking up speed too. So far, quarterly earnings from the bloc’s companies have been remarkably strong.
More than half of Europe’s Stoxx 600 blue-chips that have reported to date have beaten expectations. All in, corporate Europe has exceeded forecast earnings by 8 per cent, according to Deutsche Bank — double the region’s long-term average.
The stronger numbers have led several analyst teams to boost their 2026 forecasts. Next year, earnings for the Stoxx index overall are expected to grow by 9 per cent. That is a healthy clip, and not miles away from the US market’s technology-juiced 14 per cent forecast.
So far, banks and insurers including UBS, Deutsche Bank and Munich Re have led the sectors beating expectations, helped by respectively strong sales and lower claims. Soggy earnings from carmakers and utilities still weighed on the overall picture, but they did better than in previous reporting seasons, with the likes of Mercedes-Benz comfortably beating forecasts.
Next year, earnings should benefit from better growth and the impact of government spending. Monthly purchasing managers’ surveys — often a close indicator of where the market overall will go — are showing their best combined reading in more than two years. On top of that, currency movements have stabilised. Earlier this year, the US dollar’s 8 per cent slide against the euro left Europeans counting the hit to their overseas earnings.
This rosier picture helps explain why the Euro Stoxx is up 14 per cent year-to-date against 16 per cent for the S&P 500. Could Europe nose ahead in the last few weeks of the year? At 17 times next year’s forecast earnings, its blue-chips fall far short of their US cousins on a multiple of 26, but have climbed steadily from the levels they plumbed when the US announced tariffs in April.
There is muscle memory for investors to contend with, of course: it is 10 years since the Stoxx 600 has ended December having gained more than the S&P 500. But if earnings continue to motor ahead, Europeans will have more room to rally. This neck-and-neck race may just go to the underdog this year.