European companies are trailing their American counterparts in second-quarter earnings, highlighting growing concerns over the region’s economic momentum as trade tensions and currency shifts weigh heavily on business performance.
According to Bank of America, more than half of the companies listed in the Stoxx Europe 600 index have reported earnings showing zero growth compared to the previous year, despite earlier optimism that Europe might experience a market revival. In contrast, the US-based S&P 500 index is set to post 9% year-on-year earnings growth, driven by robust performances from Silicon Valley tech firms and Wall Street banks.
Disappointment Despite High Hopes
Investors had hoped that Europe’s stock markets would rebound, especially following early-year gains and Germany’s expansive fiscal stimulus. Optimism was also fueled by a surge in defense spending and increased allocations to Eurozone stocks — reaching their highest levels since 2021.
However, the resurgence has lost steam. Analysts say weak corporate results have reinforced a long-standing pattern of “European underperformance”. BofA’s Andreas Bruckner remarked that “no one expected a strong season in Europe,” and that even after adjusting expectations downward due to ongoing trade disruptions, many companies still failed to meet targets.
By contrast, the US earnings season has delivered one of the strongest upside surprises in recent decades, with Goldman Sachs analysts noting that the current quarter ranks just behind pandemic-era peaks in terms of positive earnings surprises.
Sector-Wide Struggles in Europe
Export-oriented sectors — especially the automotive industry — bore the brunt of Europe’s earnings setbacks. Major automakers like Volkswagen, Stellantis, and Mercedes-Benz have all downgraded their earnings outlooks for 2025, citing the effects of US tariffs introduced under President Trump’s administration.
Financial institutions offered a rare bright spot: Deutsche Bank, UBS, and BNP Paribas all exceeded earnings expectations thanks to strong performance in their trading divisions.
Currency Pressures and the Dollar Dynamic
One of the most significant headwinds for European exporters has been the strength of the euro, which has appreciated by approximately 12% against the US dollar this year. While this has benefited non-euro investors, it has squeezed earnings for eurozone companies that generate revenues in dollars.
Barclays’ analysis of earnings transcripts revealed that over 80% of Stoxx 600 companies cited currency fluctuations as a key challenge to their earnings. Sharon Bell, senior equities strategist at Goldman Sachs, noted that the strong euro has been a “major drag”, particularly since many European companies rely heavily on dollar-based revenue.
Meanwhile, the weaker US dollar has boosted American exporters, as overseas earnings translate into higher dollar values.
Tech Dominance Boosts US Growth
The primary driver behind the S&P 500’s strong earnings growth is the continued dominance of US tech companies, a sector largely absent from European markets. As a result, Europe has struggled to match the pace of the US despite structural reforms and fiscal initiatives.
Trade War Adds Further Uncertainty
President Trump’s new tariff regime has added a layer of unpredictability, although its immediate impact on European companies remains limited. Many businesses had stockpiled inventories ahead of the tariffs, softening the blow for now. However, analysts suggest the full effect will likely become evident in the second half of the year.
Despite ongoing macroeconomic challenges, companies that manage to beat expectations — in either region — are receiving muted rewards in terms of share price gains. Conversely, those that miss expectations are experiencing sharp market penalties, according to Goldman Sachs data.
Outlook
As the Stoxx Europe 600 index remains nearly flat year-to-date and lags behind the S&P 500, concerns persist over Europe’s ability to compete on a global scale. While some sectors, like airlines, have outperformed their US counterparts in 2025, the broader trend suggests that earnings growth, global competitiveness, and investor confidence continue to favor the United States.
The current earnings season underscores the widening transatlantic divide — driven by technological leadership, currency dynamics, and trade policy — placing further pressure on European policymakers and corporations to adapt.
