Goldman Sachs analysts are exploring why European company earnings appear more resilient than the broader domestic economy would suggest. While investors often rely on GDP growth to gauge earnings, this relationship is not always straightforward. For instance, in 2025, euro area nominal GDP grew by 3.7%, while STOXX 600 earnings grew by 2.4%. This year, however, earnings are expected to outpace economic growth significantly.
One key factor is the sector composition of Europe’s largest stocks. Financials, energy, and technology sectors have a larger weight in earnings than in the overall economy. Conversely, real estate, retail, and industrials have a smaller representation in the stock market compared to their economic footprint.
Another factor is the global exposure of European companies. Over half of STOXX 600 revenues now come from outside Europe, making global growth more relevant than domestic growth. A weaker euro also boosts the value of overseas profits, many of which are denominated in US dollars.
Higher energy prices present a mixed picture. While energy and basic resource companies benefit, sustained high costs could eventually weaken profit margins. Goldman Sachs forecasts broadly flat margins for STOXX 600 companies until 2028, excluding financials and commodities, contrasting with analysts' expectations of margin expansion.