Breaking a Two-Year Silence! Analysts Keep Raising Euro Stock Earnings Forecasts for 10 Straight Weeks, at the Fastest Pace Since 2024

European stocks are gaining a new fundamental tailwind.

After nearly two years of continued downward revisions to profit expectations, Europe’s corporate earnings outlook has shown a clear improvement. A Citi Group-tracked earnings revision indicator shows that the number of analysts upgrading European companies’ earnings forecasts has now exceeded downgrades for the 10th consecutive week, marking the longest stretch of net upward revisions in nearly two years. Meanwhile, Bloomberg Intelligence expects Europe’s corporate earnings to grow 12% year over year in Q2 this year, the fastest pace in more than three years.

Improved earnings expectations are also prompting institutions to raise target levels further. Morgan Stanley has raised its 2026 earnings growth forecast for the MSCI Europe Index to 12.5%, and expects the index to still have about 10% upside over the next 12 months. Flows have also started to recover: for the week ending July 8, European stock funds recorded about $400 million in net inflows, indicating that global capital is refocusing on European assets.

Earnings expectations rising for 10 straight weeks—whether it can underpin a rebound in European stocks remains to be seen

After nearly two years of almost uninterrupted downgrades, the direction of revisions to European corporate earnings expectations has undergone a substantive reversal. According to Citi’s statistics based on Bloomberg data, European earnings expectations have been net upgraded for 10 straight weeks, marking the longest run of consecutive upgrades since mid-2024.

However, Bloomberg also notes that similar upgrades two years ago abruptly ended a few weeks before the earnings season began and quickly turned downward again, casting doubt among the market about the sustainability of the current trend.

More importantly, expectations themselves are becoming a source of risk. The current market pricing for earnings growth is already at a high level; once actual earnings fall short of expectations, downside pressure on share prices will be amplified. In terms of industry structure, the energy sector is seen as benefiting from oil prices staying relatively elevated, and profits are expected to receive support; the banking sector is viewed as an early beneficiary of the Europe AI application wave, with earnings resilience expected to continue to show up.

Fund manager Marina Zavolock of asset manager Natalia Milovets believes the market has a systemic misjudgment of European corporate earnings. “An inflation backdrop, AI penetration, and globally diversified revenue strategies are together forming structural support for European companies’ earnings,” she said. “These factors have not yet been fully priced in, leaving room for further upside in European equities.”

On the performance front, after consistently lagging U.S. stocks since March this year, the European STOXX 600 index managed to overtake last month and outperformed the S&P 500 index. One of the catalysts is that the temporary Iran–Israel ceasefire agreement temporarily eased the geopolitical risk premium; although geopolitical risk has heated up again recently, current oil prices still remain significantly lower than during the conflict’s peak period.

Helen Jewell, BlackRock’s chief investment officer for fundamental equities, said: “Europe is currently better suited to be used as a diversifying tool within a portfolio. AI theme positions are highly concentrated, and the industry breadth of the European market can effectively hedge against such crowded risks. Judging from earnings trends and corporate resilience, Europe is not at a disadvantage.”

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