Chart of the week: can Europe start to bend the curve?

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Q3 earnings season has kicked off.  Consensus forecasts are for approximately 7% year-on-year (y/y) Earnings Per Share (EPS) growth in the US and -1% y/y in Europe.  Just over 10% of S&P 500 companies have reported (with a bias to Financials which can include random fluctuations) and so far, earnings are coming in about 5% ahead of expectations. European reporting is at an earlier stage (and is less detailed), with less than 10% of reports in but results have been about 3% below expectations.

Since the end of June, European EPS forecasts have been cut by 2% for 2025 and 1% for 2026. For the US, 2025 and 2026 forecast revisions are +1.7% and +1.5%, respectively, over the same period, with a modest tailwind from the weaker US dollar.  Both regions are forecast to show double digit EPS growth in 2026, over 13% for the US and 11% for Europe.  In the US, over half of 2026 forecast EPS growth is expected to come from the IT and Communications Services sectors, given their higher index weights and faster, albeit moderating growth.  In Europe, we estimate more than one third of forecast 2026 earnings growth is attributable to sectors recovering from declines in 2025.  That’s not bad but highlights Europe’s challenge of greater exposure to cyclical and slower growth sectors.