Goldman slashed its 2026 Europe EPS forecast to about 4% — roughly a third of consensus. The bank also says STOXX 600 earnings may fall about 1% in 2025, blaming weak end-demand, an expected ~7% stronger euro and slowing growth in China. Goldman’s equity research team — led by Sharon Bell with Guillaume Jaisson and Giovanni Ferrannini — says those factors, plus political uncertainty, have already pushed full-year 2025 estimates down.

Goldman cuts its outlook for European profits Goldman Sachs’ equity research team has reduced its expectations for European company profits, arguing that headline sell-side forecasts look too optimistic. Sharon Bell, a strategist at Goldman Sachs, wrote that the market consensus expects about 13% earnings-per-share growth in 2026, but Goldman Sachs Research now models roughly a 4% rise. The scale of the gap is large: second-quarter earnings in Europe broadly matched expectations, yet aggregate estimates for full-year 2025 have been revised down and remain under pressure. Consensus forecasts for STOXX 600 earnings-per-share have been lowered to a decline of about 1% in 2025, down from an expectation of 8% growth at the start of the year. Goldman’s adjustment reflects both cyclical and currency drivers. The firm’s team — including Sharon Bell alongside Guillaume Jaisson and Giovanni Ferrannini — points to weak end-demand across manufacturing and consumer-facing sectors, a euro that Goldman expects to strengthen materially against the U.S. dollar, and political uncertainty in key markets as reasons estimates are being trimmed. Demand and the euro: a double hit Goldman analysts expect the euro to appreciate about 7% to roughly $1.25 over the next 12 months, which would reduce dollar-priced revenue for many European exporters. Bell wrote that such a currency swing would be a "significant drag" on reported earnings for companies with substantial U.S. sales or dollar-denominated pricing. At the same time, macro activity is cooling. Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said weaker economic activity in Europe has already prompted earnings downgrades across sectors more broadly than in the U.S., with large-cap technology firms notably vulnerable. Germany — with its reliance on manufacturing and Chinese export demand — is particularly exposed as the Chinese economy softens. Valuations and regional comparisons Goldman notes that the forward price-to-earnings ratio for European stocks sits around 14.4, near the 70th percentile of its historical range since 2000, after a "stellar" start to the year. While absolute valuations have risen, European shares still trade at a discount to U.S. stocks once sector mix and growth expectations are adjusted, and they are not extreme relative to sovereign and high-yield bonds. However, equity risk premia have compressed significantly. "Equity risk premia have fallen sharply and are now, mostly, back to levels seen in the run-up to the financial crisis," Oppenheimer wrote, suggesting markets are more vulnerable to growth or inflation disappointments. Key drivers (Goldman’s view) - Weak end-demand across manufacturing and consumer-facing sectors - An anticipated ~7% euro appreciation to about $1.25, hurting dollar-priced revenue - Slowing Chinese growth reducing export and luxury demand - Political uncertainty in key markets that can impede upgrades Sector winners and losers Goldman’s team expects domestic-focused companies with resilient earnings to outperform in the months ahead, while exporters and cyclically exposed firms may face more pressure as currency and demand headwinds persist.

Related Articles

"We're not likely to see a bear market," said Peter Oppenheimer, chief global equity strategist at Goldman Sachs. Still, Goldman warns compressed equity risk premia and the combination of weak demand and an expected roughly 7% euro appreciation will keep profit upgrades scarce.

This article was created with AI assistance.