European blue-chip stocks are set to deliver their strongest quarterly earnings growth in more than three years, according to fresh data from LSEG I/B/E/S released Wednesday. Analysts now expect profits for the STOXX Europe 600 index to rise 17.3% in the second quarter, a sharp upward revision from earlier forecasts.
The improvement is broad-based: every sector except healthcare is expected to show profit growth. But the headline number is heavily skewed by one industry. Energy sector earnings are forecast to jump 122.6%, reflecting the surge in oil and gas prices over the past year. Strip out energy, and the expected earnings growth for the rest of the index falls to 7.2%.
What is driving the upgrade?
The LSEG I/B/E/S data combines actual results already reported by 77 companies in the STOXX 600 with analyst estimates for the remaining firms. The resulting 17.3% growth rate would mark the fastest pace of profit expansion for the index since early 2021, when the global economy was rebounding from the pandemic.
Energy companies have been the standout beneficiaries of higher commodity prices. Crude oil has traded well above $80 per barrel for much of 2024, and European natural gas prices remain elevated due to supply concerns. That has boosted revenues and margins for oil majors such as Shell, TotalEnergies and BP, which together carry significant weight in the STOXX 600.
Other sectors are also contributing. Industrial firms, financials and technology companies are all expected to report higher profits, though at more modest rates. The healthcare sector is the only one forecast to see a decline, likely due to a post-pandemic normalization in demand for medical products and services.
What it means for investors
For everyday investors, the earnings outlook is a key signal of corporate health and a driver of stock prices. Rising profits generally support higher share prices over time, so the upgrade is a positive sign for European equity markets.
However, the heavy reliance on energy means the headline number may overstate the strength of the broader economy. The 7.2% growth rate excluding energy is still respectable, but it is less than half the headline figure. Investors should look beyond the aggregate number and consider which sectors are actually driving the gains.
Energy stocks have already rallied sharply this year, and some analysts caution that further upside may be limited if oil prices stabilize or decline. Meanwhile, sectors like technology and industrials may offer more sustainable growth if the European economy continues to recover.
The earnings season is still underway, and final results could differ from estimates. Investors will be watching upcoming reports from major companies to see whether the optimistic forecasts hold up. Any surprises—positive or negative—could move markets in the weeks ahead.
For context, the STOXX Europe 600 index includes 600 of the largest publicly traded companies in Europe, spanning 17 countries. It is widely used as a benchmark for European equities, similar to the S&P 500 in the United States.
In related news, Thales orders surged 21% to €12.47 billion as European defense spending accelerates, highlighting another area of strength in the region. Meanwhile, European tech stocks slid as oil surged past $96 ahead of an ECB decision, showing how energy prices can weigh on other sectors.
Overall, the brighter earnings outlook is a welcome development for European markets, but investors should remain mindful of the concentration risk in energy. Diversification across sectors and regions remains a prudent approach.
