The punishment

This quarter, European markets are delivering the harshest punishment for earnings misses since 2005. On average, Stoxx 600 companies falling short of expectations are underperforming the index by 2.3 percentage points — despite already lowered forecasts going into the season.

The reaction reflects fragile sentiment following renewed enthusiasm for European equities earlier this year. Investors had rotated into the region on hopes of a catch-up rally, attractive valuations relative to the U.S., and expectations of higher infrastructure and defense spending. With part of the optimism priced in, tolerance for disappointment is minimal.

High-profile warnings from Renault, Puma, and Novo Nordisk triggered sharp drawdowns, even though aggregate earnings are flat versus expectations for a decline.

At ECP, we focus on resilient businesses with durable fundamentals — a discipline that limits downside in fragile markets (Novo being a separate case). In an environment where missteps are punished severely, we remain convinced this selective approach is a key strength.