European companies’ earnings are lagging behind their US counterparts in 2Q after a strong start to the year for European stocks, the Financial Times reports. While the US had begun to lose favor amid US President Donald Trump’s unpredictable policy environment, European stocks rallied to start the year, marking their best performance against US stocks in nearly a decade. Allocations to Eurozone stocks were at a four-year high at the beginning of this year, according to a Bank of America survey of fund managers showed, while funds have been flowing out of the US and into Europe amid bigger fiscal stimulus packages and lower interest rates in Europe, and a lack of predictability in the US.

A short-lived spell: Despite this, US stocks have quickly regained favor with strong earnings from US mega cap firms buoying stock performance, while in Europe, the region’s stock rally began to lose momentum, the salmon colored writes. Around half of the companies listed on Stoxx Europe 600 have already reported their 2Q earnings, and they imply the index will stay flat in terms of earnings growth on an annual basis, the FT said. On the other hand, the S&P 500 is on track to see a 9% y-o-y increase in average earnings growth, the FT cites BofA as saying.

Exporters, especially automakers, were among the biggest of Europe’s earnings disappointments, with carmakers seeing the sharpest downward revisions to 2025 earnings forecasts of any sector. Volkswagen, Stellantis, and Mercedes-Benz all issued warnings over the potential impact of Trump-era tariffs.

The financials sector is still a bright spot: Banks like Deutsche Bank, UBS, and BNP Paribas have consistently outperformed expectations, with strong performance from their trading businesses helping them all post earnings that topped analyst forecasts.

The EUR is not helping: The EUR gained c. 12% against the greenback this year, which is good for investors allocating to European equities, but not for many European companies who make their earnings in USD, senior equities strategist at Goldman Sachs Sharon Bell said. Earnings transcripts found that more than 80% of Stoxx 600 companies flagged currency fluctuations as a drag on their earnings.

The US is where the money is at: Analysts say Europe still lacks the big, leading businesses the US has. “You have to back it up with earnings and profits and economic growth,” said Grant Bowers, senior vice-president at investment firm Franklin Templeton. “You need the corporations to follow through — and Europe struggles to have these leading businesses.”

Things could be even more challenging in 2H: The direct tariff impact for European companies is currently “extremely small,” Bell said, adding that full impact will materialize in 2H.

TASI

10,930

-0.2% (YTD: -9.2%)

MSCI Tadawul 30

1,407

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NomuC

26,649

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USD : SAR (SAMA)

USD 3.75 Sell

USD 3.75 Buy

Interest rates

5.0% repo

4.5% reverse repo

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ADX

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Euro Stoxx 50

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147.74

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VIX (Volatility Index)

15.15

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THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% last Thursday on turnover of SAR 4.5 bn. The index is down 9.2% YTD.

In the green: Bawan (+9.9%), Banan (+9.7%) and Alsagr Insurance (+5.8%).

In the red: Abo Moati (-4.8%), Al Hammadi (-4.4%) and SRMG (-3.0%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.2% last Thursday on turnover of SAR 20.9 mn. The index is down 15.3% YTD.

In the green: Apico (+14.9%), Al Naqool (+7.8%) and Paper Home (+6.0%).

In the red: Horizon Educational (-9.9%), Osool and Bakheet (-8.5%) and Mobi Industry (-7.0%).

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