Deutsche Bank says second-quarter corporate results across Europe look set to show a clear step-up in earnings, a rebound it attributes primarily to an outsized contribution from the Energy sector.
Consensus estimates point to roughly 12% year-on-year earnings growth for the STOXX 600 in Q2, but Deutsche Bank argues revisions ahead of reporting season make a 14% outcome plausible. When Energy is stripped out of the index, the bank notes growth softens markedly to around 3% year-on-year.
Energy at the centre
The bank expects Energy earnings to soar by about 84% compared with the prior year. Brent crude averaged $97 per barrel over the quarter, representing a 45% rise from a year earlier, a move that underpins the sector’s profit expansion.
Deutsche strategists highlight that many energy-intensive companies have hedges in place. On balance, they estimate the net effect of higher energy prices is positive for the European market in Q2 - with Energy companies seeing sharply higher earnings while the detrimental impact on energy-consuming firms is expected to materialise with a lag.
Mixed results beyond Energy
Outside Energy, the bank expects a varied picture across industries. Chemicals and Industrials are projected to record solid earnings gains. Banks, by contrast, are seen experiencing a slowdown in earnings growth to mid-single digits. Healthcare is forecast to register a third straight quarter of declining earnings, while Autos are tracking toward their first quarter of positive earnings growth since 2023.
Deutsche also reports that positive earnings revisions for full-year 2026 are accumulating. Its updated view now implies 13% earnings growth for the STOXX 600 in FY26, with upward revisions broadening across cyclical pockets such as Basic Resources, Chemicals, and Industrials.
Despite these pockets of improvement, consumer-facing sectors remain under pressure - notably Autos, Travel, Staples, and Luxury, which the bank says continue to face headwinds.
U.S.-Europe gap and full-year outlook
Following a strong first quarter for U.S. companies, Deutsche strategists suggest the earnings growth gap between the U.S. and Europe will begin to narrow from Q2 and could close by Q4. The bank has recently ended its preference for U.S. over European equities in part because it anticipates that gap tightening.
For the full year, Deutsche maintains a forecast of 10% earnings growth for the STOXX 600. The bank acknowledges that this view may be conservative relative to consensus, particularly given the sensitivity of Energy earnings to oil price moves linked to any resolution of the Middle East conflict.
Key implications
- Energy is expected to be the dominant driver of Q2 earnings growth for European companies.
- Excluding Energy, aggregate earnings momentum is notably weaker.
- Cyclical sectors such as Basic Resources, Chemicals, and Industrials are showing broader positive revisions.