Different continent, different picture

Earlier this week, we showed how earnings growth has done the heavy lifting for US equities. Our portfolio management intern, Maxence Brands , has run the same analysis for Europe. The picture is quite different. Since October 2022, the STOXX Europe 600 has gained around 65%. But much of that performance came from valuation expansion rather than earnings growth. Forward earnings increased by 25%, while the P/E multiple rose from 10.7x to 14.0x.

In fact, until the end of 2025, European earnings had barely moved, rising just 8% over more than three years. Investors were simply willing to pay more for the same earnings, admittedly starting from very depressed valuations.
But something is changing. Since the beginning of 2026, forward earnings have risen by 16%, while the P/E multiple has retreated from a peak of around 16x. Earnings are finally catching up with prices. This is encouraging, but there is a catch.
Much of that earnings growth is still based on forecasts, not reported profits. And with valuations no longer particularly cheap, there is less room for disappointment. Unlike in the US, AI has not been the main driver of European earnings. Whether European companies can now deliver sustained profit growth will be decisive for the next phase of the market.
The next leg of the European equity rally will have to be earned, not simply revalued.