Will US Stocks Repeat History?
At a Glance
The current environment suggests that European corporate earnings might outpaced GDP growth as indicated by Goldman Sachs. Per the full note, Goldman’s research anticipates earnings growth in Europe to exceed economic growth rates for both 2026 and 2027, attributing this to strong consumer demand and a resilient business landscape. This optimistic outlook comes amidst heightened M&A activity and inflation concerns, positioning European equities as attractive despite macroeconomic uncertainties. Given the divergence between earnings and GDP performance, the euro may exhibit relative strength against the dollar in the medium term.
Key Takeaways
- 01Goldman Sachs forecasts European earnings to grow faster than GDP in 2026 and 2027.
- 02Strong consumer demand is cited as a key driver for robust corporate earnings.
- 03The divergence of earnings growth from GDP may bolster European equities' attractiveness.
- 04Market reactions to corporate earnings reports will be key indicators moving forward.
Full Analysis
What the desk is arguing
Goldman Sachs posits that European corporate earnings will outperform euro area GDP in the coming years, signifying a potential decoupling of stock market performance from economic growth. This assertion highlights a robust demand landscape that supports strong earnings growth, even in an inflationary environment.
According to Goldman Sachs, corporate earnings are projected to exceed GDP growth for 2026 and 2027, which could reinforce investor confidence in European equities. This outlook indicates a favorable near-term trajectory for these markets, pushing traders to reassess their positions in euro-related currencies.
Where it sits in our coverage
Our consensus target for EUR/USD is currently set at 1.075, with a range spanning from 1.04 to 1.12. Notable firms include: - jpmorgan: Target of 1.10 (Mar26) - bofa: Target of 1.04 (Mar26)
This view from Goldman Sachs aligns closely with jpmorgan, who holds a similarly bullish stance, while it diverges sharply from bofa, which remains more bearish on the euro's outlook.
How other firms see it
While jpmorgan and other bullish firms align with this optimistic view on European earnings, bofa offers a contrasting perspective, remaining cautious due to potential economic headwinds. Their forecasts suggest that there could be obstacles in sustaining growth in earnings over the next two years.
Traders should keep an eye on the EUR/USD trajectory as it relates to the broader European economic indicators and central bank decisions which could heavily influence market sentiment.
Market Implications
Watch for EUR/USD movements around the 1.075 level as European earnings reports come out in the next quarter, potentially influencing trader sentiment significantly. Pay attention to shifts in investor positioning that could result from earnings surprises.
From the original
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