Europe Smashes Zero-Growth Predictions: Q3 Earnings Surge 5.7% Against All Odds
Defying the naysayers, Europe's markets just delivered a knockout punch to stagnation forecasts.
The surprise rebound: A 5.7% EPS jump laughs in the face of 'zero-growth' projections.
Analysts scramble to explain the rally—while quietly deleting their doom-and-gloom spreadsheets. Turns out, even old economies can throw a curveball when Wall Street isn't looking.
The cynical take: Watch hedge funds now spin this as 'proof of structural resilience' after months of short positions.
Banks, energy, and autos drive recovery
Guillaume Jaisson, who leads the strategy team at Goldman Sachs, said, “The earnings season continues to deliver,” adding that most of the guidance has been confirmed and forecasts are now either holding up or moving higher.
So much for that analyst caution.
While stocks in Europe are starting to look more expensive, they’re still nowhere NEAR overheated. The average forward price-to-earnings ratio hit 15, the highest it’s been in about four years. But that’s still well below the post-pandemic peak. On top of that, the Stoxx 600 is trading at a 35% discount to the S&P 500.
Banks and energy were the earnings anchors this quarter. Net interest income held up well, and banks didn’t have to swallow big losses on loans. Meanwhile, energy names got help from better refining margins, even as oil prices stayed soft.
Philip Richards, senior analyst at BI, said the bank sector had roughly a ten-to-one beat-to-miss ratio. Barclays, NatWest, HSBC, and Standard Chartered all posted stronger-than-expected earnings.
The sector’s current earnings upgrade cycle, which started five years ago, looks like it’s going to keep rolling right through 2026.
The energy side saw Shell, BP, and Eni post better-than-expected bottom lines. BP beat expectations on Q3 profit, giving its turnaround story a bit of a boost.
The automotive sector (the one that’s been dragging for more than a year) finally showed a flicker of life. Profit warnings were the norm for five straight quarters, but this time around, the sector managed a positive surprise.
Analysts gave credit to cost-cutting and restructuring plans, which helped improve margins and led to upgraded profit estimates. But let’s be clear: profits still fell year-on-year and sequentially. The surprise just means things didn’t fall off a cliff.
AI reshapes operations, management stays optimistic
Meanwhile, AI was everywhere in Europe’s Q3 earnings calls, with mentions hitting a record high, as firms across Europe are leaning into automation and efficiency gains.
Laurent Douillet and Kaidi Meng, both strategists at BI, said, “AI is no longer a niche theme, but a key driver of productivity and profitability as 2026 beckons.”
Tech firms, of course, did most of the talking, but banks weren’t silent. Banco Santander’s CEO, Hector Grisi, said they’re using AI to automate and cut down on manual work.
ING Groep in the Netherlands estimated that 950 jobs could be eliminated by the end of 2026 due to the shift to digital lending.
Consumer discretionary and energy companies also mentioned using AI for personalization, automation, and managing risk.
Even the mood among executives has turned around. Management sentiment is now almost back to 2021 levels. Macro worries? Shrinking.
That confidence is feeding back into forecasts, with Maximilian Uleer, who heads equity and cross-asset strategy at Deutsche Bank, predicting even more earnings upgrades.
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