Stock Markets July 4, 2026 04:29 PM

Goldman Sachs Flags Three Watchpoints as European Earnings Season Nears

Broker highlights energy pass-through, China competition and AI commentary as the market braces for a higher bar

By Derek Hwang
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Goldman Sachs identifies three areas of focus ahead of Europe’s corporate earnings season: the knock-on effects of the energy shock across supply chains, profit trends at firms facing Chinese competition, and management commentary on artificial intelligence and cost savings. The broker notes that commodities are the primary driver of expected earnings growth while a stronger-than-expected bar could increase market sensitivity to earnings misses.

Goldman Sachs Flags Three Watchpoints as European Earnings Season Nears
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Key Points

  • Goldman Sachs identifies three monitoring priorities: energy shock transmission down value chains; earnings trends for firms facing Chinese competition; and management commentary on AI deployment and associated cost savings.
  • Consensus projects H1 2026 earnings growth of 11% year-on-year, driven mainly by commodity companies; excluding commodities, H1 growth is expected at 6%. STOXX 600 earnings are seen rising 10% in 2026, with commodity producers forecast to grow earnings by more than 50%.
  • Energy earnings were revised up 28% since the start of Q2 due to stronger margins; outside commodities, aggregate earnings and margin expectations have been broadly stable since Q2 began.

Goldman Sachs has outlined three distinct signals investors should watch as European companies prepare to report results in the coming weeks, warning that an elevated consensus could lead to more pronounced market reactions in the event of earnings disappointments.

In a statement summarising their focus for the period, the firm said:

"Going into the season, we will closely monitor: the extent to which the energy shock will transmit down the value chain; earnings developments for European names exposed to competition from China; management discussion on AI usage and on the related cost reductions,"

Reporting activity will be concentrated across July and August, with more than 90% of the STOXX 600 market capitalisation expected to have reported by the end of August. The last week of July is projected to be the busiest reporting window.

Consensus forecasts call for earnings growth of 11% year-on-year in the first half of 2026, a rise Goldman Sachs says is driven largely by commodity producers. When commodities are excluded, expected H1 2026 earnings growth falls to 6%.

Goldman Sachs reiterated its full-year outlook, continuing to expect STOXX 600 earnings to increase by 10% in 2026. Within that aggregate, commodity producers are forecast to see earnings expand by more than 50%.

Energy sector results have already been revised notably higher: energy earnings have been lifted by 28% since the start of the second quarter, a revision the broker attributes primarily to margin strength.

By contrast, outside the commodities complex, Goldman Sachs reports that aggregate earnings and margin expectations have remained broadly stable since the beginning of Q2. The firm links this stability to assumptions that the impact of the Iran conflict will be relatively short-lived but cautions that this expectation raises the threshold that companies must meet during the season.

The firm also highlights valuation developments. Expanding valuations beyond the energy sector - with banks and technology among the better performers in Q2 thanks to price-to-earnings re-rating - increase the chance of sharper market reactions to earnings misses, as investors will scrutinise longer-term growth prospects more closely.

On the macro front, Goldman Sachs characterises the environment as benign and supportive. Indicators cited include a resilient Current Activity Index and a small upward revision to area-wide Q2 GDP tracking estimates. Manufacturing PMI averaged 51.7 in Q2, up from 50.6 in Q1. The broker adds that a weaker EUR/USD in Q2 compared with Q1 should be a modest tailwind for companies with dollar or overseas revenues.

Turning to oil and gas specifically, the analysts expect strong Brent price realisations but say investors are likely to shift attention toward capital expenditure plans. Unlike in 2022, Goldman Sachs suggests that higher profits are unlikely to translate into materially larger shareholder returns this time, because reinvestment is expected to increase from structurally low levels.


Overall, the note frames the upcoming reporting season as one in which commodities will be the primary source of earnings upside, while rising valuations and a benign macro backdrop raise expectations and the potential for more volatile market responses to any disappointments.

Risks

  • A higher consensus and expanding valuations outside energy - particularly in banks and technology - increase the risk of sharper stock reactions if companies miss elevated expectations, affecting financials, technology and broader equity markets.
  • If the impact of the Iran conflict proves more persistent than currently expected, it could undermine the assumption of a short-lived shock and put pressure on earnings and margins in energy-exposed sectors.
  • Investor focus on oil and gas capital expenditure plans could constrain shareholder returns even if near-term profits rise, as reinvestment is expected to increase from structurally low levels, affecting energy sector payout dynamics.

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