Daily Europe

4 August 2026, 04:30 UTC Chief Investment Office GWM Investment Research

European earnings results: Execution is evident UBS House View - Daily Europe Mark Haefele, Global Wealth Management Chief Investment Officer, UBS Switzerland AG Rolf Ganter, CFA, CIO Head of Europe Equities, UBS Switzerland AG Matthew Gilman, Head, CIO Europe Equity Strategy, UBS Switzerland AG Matthew Carter, Strategist, UBS AG London Branch Themis Themistocleous, Head Chief Investment Office EMEA, UBS AG London Branch Alison Parums, Strategist, UBS Switzerland AG

From the studio What to watch: 4 August Podcast: Signal over Noise | AI trade at a crossroads, on Apple or • US June JOLTs job openings Spotify (6 mins) Video: Market Playbook | Why investors should revisit Europe (4 mins) • US June balance of trade

Thought of the day We recently upgraded European and Eurozone equities to Attractive, in large part because we expect the region’s stocks to break out of their earnings malaise.

Ahead of the current reporting season, we anticipated a meaningful earnings cycle that exceeds current market expectations, forecasting around 25% earnings growth over 2026 and 2027. We expected the combination of cyclical improvement and large-scale structural investment to also begin to feed more broadly through the economy, creating a self-reinforcing growth dynamic where one company’s investment becomes another company’s revenue.

So far, we believe company reports corroborate our view that firms are executing on their plans and that the region’s earnings trajectory is turning more positive.

Earnings improvement on track, revenue headwinds fading. At a current run rate of around 17% year-over-year growth (7% excluding the energy sector), we believe second-quarter earnings are consistent with an overall result of 15-20% y/y growth for the period. Self-help stories and cost discipline are helping earnings per share growth exceed top-line growth at this stage. But we expect revenue headwinds to fade and see profitability rebounding in certain key segments such as consumer discretionary and commodity-linked sectors.

The drivers of the recovery are diverse. Our investment thesis for European and Eurozone equities rests on five key areas driving a brighter earnings outlook. These include themes linked to global trends such as electrification, automation, and reshoring. The market can also benefit from more locally-driven shifts such as Europe’s intensified focus on defense and a changing financial services backdrop, which is moving beyond the rates outlook to bank lending volumes, fees and increased efficiency. Bottom-up consensus estimates for MSCI EMU profit growth this year and next support

This report has been prepared by UBS Switzerland AG, UBS AG London Branch. Please see important disclaimers and disclosures at the end of the document.

this “broadening out” view. We expect consumer discretionary, energy and materials, and financials to contribute the bulk of profit growth in 2026, while financials, industrials, IT, and defensives should drive 2027 profit growth.

AI infrastructure benefits will accrue beyond semiconductors (but expectations matter). While Europe lacks its own “Mag 7” or Chinese AI model producers, the region is home to a number of global leaders in a variety of related fields such as power management, grid equipment, automation, cooling/vacuum systems, electrical components, and data- center infrastructure. That said, we are monitoring the risk that falling short of lofty expectations could lead to sharp price reactions and heightened volatility.

With the balance of risks tilted to earnings beating expectations for this quarter, we think now is time to review and potentially add to European and Eurozone equities. At the sector level, we recently upgraded European banks to Attractive, as the sector is well positioned to benefit from solid loan demand, elevated capital markets activity, and a stable rate environment that supports profitability. We also like consumer discretionary, health care, industrials and, at the country level, Germany.

Longer term, our “European leaders” theme seeks to exploit positive structural developments tied to large-scale structural…