--- title: "European stocks defy global shocks in Europe; EPS +14% H1 2026" sdDatePublished: "2026-08-20T10:12:00Z" source: "https://www.goldmansachs.com/insights/articles/european-stocks-defy-global-shocks-with-strong-earnings-growth" topics: - name: "corporate earnings" identifier: "medtop:20000178" - name: "stock activity" identifier: "medtop:20000186" - name: "market trend" identifier: "medtop:20000284" - name: "investments" identifier: "medtop:20000378" - name: "international trade" identifier: "medtop:20000373" - name: "trade dispute" identifier: "medtop:20000376" - name: "energy market" identifier: "medtop:20000387" - name: "automotive" identifier: "medtop:20000296" - name: "chemicals" identifier: "medtop:20000217" - name: "banking" identifier: "medtop:20000274" locations: - "United States" - "Germany" - "China" --- European stocks defy global shocks in Europe; EPS +14% H1 2026 European Stocks Defy Global Shocks with Strong Earnings Growth | Goldman Sachs We harness every resource, insight, relationship, and competitive advantage to drive superior results for our clients. Goldman Sachs’ weekly newsletter, offering economic and markets analysis from across the firm. Subscribe now. We invest the power of Goldman Sachs' financial and intellectual capital to advance enduring economic growth and opportunity. European Stocks Defy Global Shocks with Strong Earnings Growth Earnings-per-share in the STOXX Europe 600 index climbed an estimated 14% in the first half of 2026 and are forecast to rise 15% for the full year, according to Goldman Sachs Research. Driven by foreign investors, inflows into European equities are at their highest level since 2021. Resilient economies, energy earnings, and big thematic shifts such as spending on tech, power, defense, and infrastructure are buoying European shares. Investors bought European equities at their highest level in five years during the first half of 2026 as companies shook off the effects of the global energy shock and bolstered profitability at a robust pace, according to Goldman Sachs Research. Foreign investors drove the strong first-half inflows into European equities, according to Goldman Sachs Research’s Sharon Bell, who says most of this is likely a function of a desire to diversify. Over the same period, companies in the STOXX Europe 600 index grew their earnings-per-share, or EPS, by an estimated 14%. The performance demonstrates that the market’s perception of Europe as a region hampered by weak profit growth is more myth than reality, says Bell, who is the senior European equity strategist for Goldman Sachs Research. “The prevailing narrative that Europe is struggling to generate earnings growth is increasingly at odds with the data,” Bell writes. “First half earnings-per-share growth is tracking at the strongest pace in three years, and notably comes despite a renewed energy supply shock.” While the conflict in the Strait of Hormuz has significantly reduced the flow of oil and raised energy prices, the European stock market has been a “secret outperformer,” Bell writes. She upgraded her forecast for top-down EPS growth for the full year in the STOXX Europe 600 index, which includes UK stocks, to 15% from 10%. Bell highlighted key sectors that have outpaced counterparts in other regions. European banks, for example, have “considerably outperformed” the Magnificent Seven group of US mega-cap stocks since 2022. The STOXX Europe 600 index has returned 54% since January 2025 compared to 34% by the S&P 500 index (as of August 13 and in US dollar terms). How is Chinese competition affecting European equities? Chinese exports to Europe pose a challenge to European companies. Exports are growing at a double-digit rate and, coupled with the strength of Chinese companies in other overseas markets, they are impacting German manufacturing and sectors such as automaking and chemicals, writes Bell. Yet the strategist cautions against reading too much into China’s export prowess. Many stocks in Europe’s finance, energy, pharmaceuticals, and telecommunications sectors are not facing pricing pressure from Chinese exports, she writes. From a portfolio construction perspective, Bell notes that some European companies that are competing with Chinese exporters are becoming a smaller portion of the continent’s overall stock market. Automakers, for example, now account for just 1% of Europe’s market capitalization. “We think investors under-appreciate how much the index composition has changed,” writes Bell. “Vast swaths of the European equity market are either unaffected, protected, or are unlikely to be affected by Chinese exports for some time.” How is the energy shock affecting European stocks? For most European economies, higher oil and natural gas prices are a drag on growth and can dampen earnings in certain sectors, writes Bell. Yet this is positive for Europe’s sizable petrochemical industry, utilities, and related sectors. Commodity companies accounted for an estimated half of the earnings increase in the STOXX Europe 600 this year. “The caveat here is that if higher energy prices last and start to impede demand then the impact on companies would broaden out,” writes Bell. Return on equity has improved markedly While Europe’s profitability does lag that of US companies, the continent’s firms are improving their return on equity, or ROE, as profit margins and stock buybacks have ramped up in recent years. Another reason for improving ROE is the rebound of Europe’s banks following a period of low interest rates during the Covid-19 pandemic. So, too, are big “thematic shifts” such as increased spending across the region on defense, infrastructure, electrification, and data centers to support artificial intelligence (AI). Europe’s ROE has been running higher than China’s for several years, writes Bell. Europe is benefitting from a new “post-modern cycle” of higher rates, inflation, and investment in infrastructure, energy security, and AI capital expenditures. Bell notes that the region has a high share of so-called HALO companies with heavy assets and low obsolescence, which tend to be insulated from AI-related disruption . Why Europe’s economy and its stock market move differently Bell writes that many investors conflate Europe’s relatively weak economic growth with its stock market. Yet just 40% of the revenue generated by STOXX companies is home grown. The rest comes from overseas business, with a quarter stemming from North America. And in terms of GDP growth , the euro area and the UK surprised to the upside in the second quarter, recording growth of 1% and 0.9%, respectively, on a year-over-year basis. “The economy has proven far more resilient to recent shocks than many expected,” Bell writes. This article is being provided for educational purposes only. 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