Chart of the week: Can Europe catch up?

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Earnings are a lagging indicator, and macro-economic trends can take a long time to work through the system. But when market enthusiasm shifted in favour of Europe vs the US earlier in 2025, earnings momentum was expected to follow. We’re not seeing it yet. So far this year, S&P 500 2025 EPS forecasts have been cut by 3%, while STOXX Europe 600 forecasts have been cut by 6%. US EPS growth was forecast at 15% coming into the year and is now ~10%; Europe started at 8% and is now just 2%. The European cuts have been deeper across 8 of 11 market sectors. Only one sector, Communication Services, is expected to grow EPS faster in Europe than in the US, and the difference is small.

So far, about three-quarters of US and half of European companies have reported Q1 2025 earnings. In the US, approximately 75% of companies have beaten consensus expectations, with overall EPS about 8% ahead. Reported EPS growth has been 13%, an acceleration from 11% growth in Q4 2024. In Europe, EPS has come in about 5% better than forecast, but growth is -7% year over year, down from -5% in Q4 2024.

Outlook commentary in both regions has been muddied by trade and broader economic uncertainty. European valuations are typically lower than US, but investors will want to see earnings momentum shift to underpin recent relative market performance.