Barclays strategists, led by Magesh Kumar Chandrasekaran, warned that headline European earnings growth is expected to cool next year, but stressed that those aggregate figures are materially affected by the energy sector - a distortion that makes the slowdown appear sharper than it otherwise would.
In the third quarter, blended earnings-per-share growth for the STOXX 600 reached 29%, according to the strategists, closing the gap with the U.S., where growth ran at 33% in the same period. The pair of figures underline that Europe narrowed its performance gap versus the U.S. during the quarter. The strategists note that when energy is excluded, third-quarter growth was 15% in Europe compared with 28% in the U.S.
Overall beat rates stayed above historical averages and margins proved resilient, though both measures eased slightly from the second-quarter peaks. Energy and defensive sectors produced the majority of the positive surprises, and defensives outpaced cyclicals with consumer staples and health care leading that outperformance. Among cyclicals, technology stood out positively while financials presented a more mixed picture than in recent quarters.
Companies sounded broadly confident heading into the outlook period despite persistent cost pressures. In the United States, guidance upgrades accelerated relative to the second quarter; in Europe, upgrades slowed a touch but downgrades also diminished, indicating less negative revision activity overall. Transcripts of STOXX 600 earnings calls signaled continued resilient demand and firm capital spending expectations. The main constraints companies cited were input cost pressures and higher interest rates, while currency moves were referenced as becoming a tailwind.
Strategists also highlighted a growing chorus of companies calling out AI-driven efficiency gains. Those efficiencies are described as delivering cost savings and prompting reduced headcount in some cases, and the theme is particularly evident among financial-sector firms in the strategists' read.
Looking to 2027, consensus forecasts see European earnings growth nearly halving to 9%, a drop Barclays attributes largely to the energy sector acting as a negative drag on the headline rate. If energy is excluded, the anticipated moderation is much less severe - moving from 16% to 13% - and analysts note that revisions remain net positive with macroeconomic indicators offering supportive context.
Revisions remain concentrated in energy and in semiconductors and technology, the strategists said, while other capital-spending-related sectors are registering modest improvements. By contrast, the broader consumer space continues to show net downgrades.
Price behaviour also evolved through the reporting season: reactions to results improved and turned modestly positive across both Europe and the U.S. Nonetheless, price momentum still trails earnings momentum in Europe, particularly among cyclicals. Barclays' team flagged that the divergence is especially acute for technology and semiconductors, while recent strength in staples and pharmaceuticals appears to be running ahead of earnings momentum.
"Price/earnings disconnect looks particularly pronounced for Cyclicals/Tech," the strategists wrote.
The analysis suggests that headline metrics should be interpreted with care given the outsized role of energy in driving consensus revisions and aggregate growth figures; when that sector is set aside, the underlying earnings trend looks considerably more stable.