Strong Earnings Season in Europe; Low Expectations Turn Out to Be the Best Cushion

While global investors are still focused on tariffs and macroeconomic data, Europe's earnings season is quietly exceeding expectations.

According to FactSet data, approximately 47% of European companies in the first quarter of 2026 reported profits that exceeded expectations, with only 20% falling short, while analyst consensus originally anticipated an EPS growth of 9% annually, and the actual results have already surpassed this benchmark.

At the same time, according to Morgan Stanley Alpha data, last week's revision in European earnings forecast was the strongest in nearly three years, which is a more sustainable signal than just exceeding expectations in a single quarter.

Macro-level noise does exist indeed — Germany's industrial output is once again disappointing, and Europe's overall macroeconomic data remains mixed. However, the market response is intriguing: investors seem increasingly willing to ignore weak economic data and focus instead on improved corporate execution. Low expectations themselves are becoming a form of protection.

Valuations are also providing support. The STOXX Europe 600's current twelve-month forward price-to-earnings ratio is only 14.5 times, which is not expensive when compared to its historical levels or U.S. stocks. From the end of February to the beginning of last week, European equities have underperformed U.S. equities by more than 10%, according to JPM data; the relative position of CTA strategies between the U.S. and Europe has approached a historical low, indicating that systematic funds' underallocation to Europe is quite