European earnings upgrades extend to 10 weeks, longest streak since 2024

Analysts have raised European corporate earnings forecasts for 10 consecutive weeks, the longest net upgrade streak since mid-2024, signaling a fundamental shift in the region's profit outlook.

European equity analysts have net upgraded earnings forecasts for 10 straight weeks, the longest such run since 2024, as improving corporate fundamentals draw global capital back to the region.

"Inflation, AI penetration and global revenue diversification are creating structural earnings support that markets haven't fully priced," said Marina Zavolock, portfolio manager at Natalia Milovets.

Bloomberg Intelligence projects European companies will report 12% year-over-year earnings growth in the second quarter, the fastest pace in more than three years. Morgan Stanley raised its 2026 earnings growth forecast for the MSCI Europe index to 12.5%, implying roughly 10% upside over the next 12 months. European equity funds attracted about $400 million in net inflows during the week ending July 8.

The upgrade cycle is a critical test for European equities, which have trailed US markets for most of the past year. If second-quarter results validate the 12% growth forecast, it could narrow the valuation gap with Wall Street and sustain the Stoxx 600's recent outperformance over the S&P 500.

The reversal in earnings momentum marks a departure from nearly two years of continuous downgrades. Citigroup's earnings revision index, compiled from Bloomberg data, shows upgrades have outpaced downgrades every week since late April, a durability that has surprised even some bullish strategists.

Yet the trend carries risk. Bloomberg notes that a similar upgrade streak in 2024 reversed abruptly weeks before the earnings season began, a precedent that tempers enthusiasm. With elevated expectations already priced in, any disappointment in actual results could trigger sharp pullbacks.

Energy and banking lead the earnings recovery

Two sectors are driving the improvement. Energy companies are benefiting from oil prices that, while below conflict peaks, remain elevated relative to pre-2022 averages. Banks are emerging as an early beneficiary of Europe's AI adoption wave, with analysts pointing to rising demand for computing infrastructure financing and data center lending.

"Europe's sector breadth is an advantage," said Helen Jewell, chief investment officer for fundamental equities international at BlackRock. "AI positioning has become highly concentrated globally, and European markets offer diversification across industries that are seeing genuine earnings momentum."

The Stoxx 600 outperformed the S&P 500 last month, helped by a temporary US-Iran peace agreement that reduced geopolitical risk premiums. While tensions have since re-escalated, oil prices remain well below the peaks reached during the conflict's most acute phase, providing a stable backdrop for energy sector profits.

Fund flows signal renewed global interest

The $400 million in weekly inflows into European equity funds, while modest by historical standards, marks a reversal from the persistent outflows that characterized much of 2025. Morgan Stanley's upgraded earnings forecast suggests the flow could accelerate if second-quarter results confirm the positive trajectory.

The MSCI Europe index trades at a discount to the S&P 500 on forward earnings, a gap that strategists say could narrow if European companies deliver on the 12% growth forecast. The next catalyst is the second-quarter earnings season, which begins in earnest later this month.

This article is for informational purposes only and does not constitute investment advice.