Bank of America strategists, led by Andreas Bruckner, report that European fourth-quarter earnings are running a touch ahead of expectations, but the underlying picture remains precarious. With just over half of firms in the STOXX 600 having posted results, year-on-year earnings per share (EPS) growth is tracking at 2% versus consensus forecasts that had pointed to a 2% decline at this juncture of the season.
The strategists note that the positive surprise at the index level is largely driven by financials and industrials, whereas the technology sector has acted as the primary detractor. When financials are excluded, earnings growth falls to approximately -5%, a decline attributable mainly to healthcare, energy, industrials and consumer discretionary companies.
Although headline EPS has slightly exceeded expectations, momentum remains muted. Revisions since the beginning of the reporting period have lifted consensus estimates by roughly 3%, yet this adjustment still leaves Q4 EPS growth close to flat, at about +1%. Sales expectations remain negative, with consensus pointing to roughly -2% year-on-year sales growth for the quarter.
Breadth of outperformance is notably weak. Only 47% of companies have beaten EPS estimates so far, which is the second-lowest ratio observed in the past five years and falls below the long-run average of 53%. Cyclical sectors have been especially soft: just 41% of cyclical firms have delivered EPS beats. Within consumer-facing areas, the weakest performance has come from consumer products and services, where only 13% of companies have topped EPS forecasts.
Defensive sectors have fared better in relative terms. The beat rate for defensives stands at 49%, with food and beverages and personal care each posting 60% beat ratios. Financial services show a 69% beat rate, while banks have a 57% success rate. Country-level dispersion is also marked: Germany has the highest recorded beat rate at 67%, compared with 20% in Spain and 33% in Italy.
Market reactions to earnings misses have been particularly punitive. Stocks that missed EPS estimates have recorded a median one-day underperformance of 2.2% - the sharpest one-day penalty since the bank's series began in 2012. Even firms that reported beats experienced a slight average negative reaction of 0.1% on the day; if that pattern persists it would represent the first negative print for beat reactions since early 2022.
Looking forward, Bank of America’s macro framework signals downside risk to earnings. The bank’s projections imply roughly a 5% downside for Stoxx 600 12-month forward EPS by mid-2026, a projection the strategists link to an "unimpressive global growth" backdrop. The combination of weak breadth, concentrated sector contributions and pronounced market penalties for misses underscores a fragile earnings season for European corporates.
Key points
- Aggregate EPS for STOXX 600 is tracking at +2% year-on-year, above consensus that had expected -2% at this stage.
- Financials and industrials are driving the index-level beat; tech is the main drag and several cyclical sectors are notably weak.
- Market punishment for EPS misses is intense: median one-day underperformance of 2.2% for misses; even beats show a -0.1% average one-day move.
Risks and uncertainties
- Concentrated contributions to headline earnings leave the index vulnerable if financials or industrials soften - impact concentrated in financials, industrials and overall market indices.
- Weak breadth of earnings beats increases downside risk to consensus EPS and sales forecasts - particularly affecting cyclical sectors such as consumer discretionary and certain industrial segments.
- Projected macro-driven downside of about 5% to 12-month forward Stoxx 600 EPS by mid-2026 under an "unimpressive global growth" scenario - an economy-driven risk that could pressure earnings across multiple sectors.