Europe's largest publicly traded companies are heading into a second-quarter earnings season that looks stronger than many investors had expected. Profit forecasts for the STOXX Europe 600 index have now climbed for eight consecutive weeks, according to data from LSEG I/B/E/S, with analysts projecting a 23.4% year-on-year increase in earnings for the quarter.
The upward revision has been powered largely by the energy and materials sectors, a sign that the rally in commodity prices is translating into corporate profits. Energy companies are expected to see earnings more than double from a year earlier, while basic materials firms are forecast to post a jump of nearly 70%.
Strength beyond oil
What makes the current earnings outlook notable is that the gains are not confined to oil producers. Even when energy is stripped out of the calculation, STOXX 600 profits are still expected to grow by 12.3% — a healthy pace that suggests the broader European economy is holding up better than some feared.
The data is based on results from 268 companies that have already reported, combined with analyst estimates for the rest of the index. That mix of actuals and forecasts gives a reasonably solid picture of how the quarter is shaping up.
Basic materials, which includes miners and chemical makers, has been a particular bright spot. Copper prices have been volatile recently, with copper slipping on a stronger dollar and growth worries, but the sector's earnings expectations remain elevated. Companies like Antofagasta have seen copper profits rise, even as they trim future output targets. Similarly, Thyssenkrupp recently raised its 2026 profit outlook on cost cuts and stronger business units, underscoring the resilience in materials.
What to watch: the second half
While the second-quarter numbers look strong, investors are already looking ahead to the second half of the year. The key question is whether the momentum can be sustained, or whether the current strength is a peak that will fade as the year progresses.
Several factors could weigh on the second half. Energy prices, while elevated, may not keep rising at the same pace. Inflation concerns remain, and oil costs are keeping inflation worries alive, which could pressure central banks to keep interest rates higher for longer. That would raise borrowing costs for companies and consumers, potentially dampening demand.
There are also company-specific risks. For example, Vestas recently raised its 2026 margin target, but analysts' forecasts for the wind turbine maker remain sensitive to supply chain and cost pressures. Similarly, Sembcorp's first-half profit dropped 25%, though the company expects a stronger second half — a reminder that not all sectors are enjoying the same tailwinds.
What it means for investors
For everyday investors, the rising earnings expectations are a positive signal for European equities. Strong corporate profits are the foundation of stock market returns, and the fact that forecasts keep improving suggests that companies are navigating the current environment better than initially expected.
However, it's important to keep perspective. A 23.4% growth rate is flattered by the energy sector's outsized gains, and the 12.3% growth excluding energy is more representative of the underlying trend. That's still a solid number, but it's not exceptional.
Investors should also be mindful of the second-half slowdown risk. If the global economy cools, or if inflation proves sticky, earnings growth could decelerate. The market has already priced in a lot of good news, so any disappointment in the coming months could lead to volatility.
As always, diversification remains key. While energy and materials are leading now, other sectors could take the baton later. Keeping a broad exposure to European stocks, rather than concentrating on a single hot sector, is a prudent approach for most investors.
The coming weeks will be crucial as more companies report. Watch not just the headline numbers, but also what management teams say about the future. Guidance for the second half will be the real test of whether Europe's blue chips can keep the momentum going.
