Strategy Espresso Europe – The secret outperformer

Portfolio Strategy Research 11 August 2026 | 5:03AM BST

Strategy Espresso: Europe – The secret outperformer

We discuss some of the common misconceptions about European equities and also Sharon Bell | some of the areas where we concur with received wisdom: Goldman Sachs International

n Myth: Europe has no growth: First-half EPS growth is tracking at +14% y/y, the Peter Oppenheimer | strongest pace in three years. We upgrade our FY 2026 EPS growth to 15%. Goldman Sachs International

n Myth: Europe has low ROE: It’s lower than the US but Europe ROE has improved Guillaume Jaisson | markedly as margins and buybacks have risen and as banks profitability has Goldman Sachs International improved this results season affirming these trends. Elena Porfidia | n Myth: Europe always underperforms: Performance has been far more mixed Goldman Sachs International than the market-narrative or most investors realise. Since 2022, European Banks Jacinta Feng (SX7P) have considerably outperformed the Magnificent 7. Since the start of | 2025 – and despite both the tariff shock and an energy supply crisis, Europe Goldman Sachs International

STOXX has outperformed S&P 500. n Myth: China competition is a huge negative: The stock market is not the economy and the largest sectors (Financials, Pharma, Tech, Energy, Utilities, Telecoms, Aerospace & Defense) are not especially vulnerable to low-cost China imports. Autos are just 1% of Europe market cap. n Myth: Higher energy prices hit EPS: It’s the opposite. Large weights in Energy and Utilities and relatively small weights in Consumer Discretionary and in domestic areas is the main reason, combined with pass-through pricing in many sectors, and higher rates supporting Banks. n Myth: No one is buying Europe: To the contrary, European equities are seeing the best inflows in 10-years ex 2021, driven by foreign flows. Plus corporates are huge buyers via buybacks and record M&A. The difference is Europe hasn’t had the retail flow of the US or Asia. n Myth: Europe is only cheap because of low growth: US companies are on higher valuations for all growth bands (other than the lowest). n But there are many truths... Europe faces more political headwinds as we move focus to 2027, Europe equity markets lack high growth names, savers capital still fails to flow to risk assets – albeit policy is changing– and Europe lags on AI spend and innovation. But, with the returns and funding cost of AI being increasingly questioned, Europe’s status as a market generating cash rather than spending it could be to its advantage, as we have seen this year.

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs Strategy Espresso

Europe – The secret outperformer

Myth 1: Europe has no growth The prevailing narrative that Europe is struggling to generate earnings growth is increasingly at odds with the data. First-half EPS growth is tracking at +14% y/y (Exhibit 1), the strongest pace in three years, and notably comes despite a renewed energy supply shock, which has historically been viewed as a headwind for European earnings. We upgrade our STOXX Europe 2026 top-down EPS forecast to 15% (from 10%) given the strong earnings season and resilient economic backdrop. Commodities have been an important contributor, but the strength extends well beyond the sector: excluding Commodities, EPS growth still stands at approximately +7%, while the median stock in the STOXX 600 is delivering earnings growth of around +7% y/y. This points to a healthy and increasingly broad-based earnings recovery rather than a narrowly concentrated commodity-driven cycle. We’d note that estimates for 2026 and 2027 have been revised upwards (Exhibit 2). This sits very much above the performance of Europe in the pre-pandemic cycle when earnings were weak or flat, regulation hampered the performance of several sectors (banks, telecoms and utilities) and low rates weakened financials earnings, and when the returns went predominately to capital light businesses. This new ‘post modern’ cycle, with higher rates and inflation…