While half of investors now anticipate a hard landing for the economy*, the current situation remains puzzling: historically, crises—whether caused by an oil shock like in 1975 or a credit crunch like in 2008—have typically prompted predictable responses from monetary and fiscal authorities. But today’s context, shaped by the initiatives of the U.S. president, is unprecedented, with a level of economic uncertainty far more intense than during his first term. One point of consensus, however, stands out: the balance of risks is tilted toward macroeconomic slowdown—implying downward pressure on earnings per share. It is therefore legitimate to question how deep the next rounds of earnings revisions might be. As the saying goes: it’s not the fall that matters, but the landing.
A quick glance at the current earnings season might suggest a business-as-usual scenario: among the 49% of European companies that have reported so far, the positive surprise rate aligns with long-term averages (around 55%). The same is true across the Atlantic (75%). But that would ignore the fact that consensus earnings expectations were significantly lowered ahead of Q1 results: S&P 500 growth forecasts for Q1 (vs Q1 2024) were revised from +11% to +6% between late December and mid-April, and from +2% to -5% in Europe.
Looking more closely, actual quarterly earnings growth in Europe (-3%) has been dragged down by energy and basic materials, whereas in the U.S., a handful of stocks—especially in healthcare and tech—have lifted the average to +14%. But if we consider median performances, the picture shifts: reported earnings growth drops to +6% in the U.S. and climbs to 5% in Europe!
Since Q1 results reflect pre-announcement conditions before a potential “release,” investor focus has been squarely on forward guidance. Unsurprisingly, most companies offered neutral macro commentary (63%), reflecting the current fog they’re operating in. However, more concrete factors like currency movements and inventory levels are increasingly cited as headwinds. Only AI seems to be generating consistent enthusiasm in these turbulent times (78% of comments were positive).
Management caution is mirrored in analyst revisions: beyond Q1, full-year projections have also been trimmed. In Europe, 2024 growth forecasts have fallen from +7% to +4% since January, largely due to weakness in autos and energy. More tellingly, the “EPS breadth” now sits at 25%, meaning four companies are being downgraded for every one that is upgraded.
What further downside is possible outside a formal recession scenario? Goldman Sachs recently offered part of the answer. Driven by falling oil prices, euro strength, and the broader economic slowdown, the U.S. bank cut its European EPS growth forecast from +2% to -7%.
While this wide dispersion in estimates versus consensus is unusual, it reflects an equally unusual macro backdrop: a disconnect between worsening surveys (PMIs, consumer confidence) and resilient hard data (consumption, production, labor market). This gap may be partly explained by a front-running phenomenon, with economic agents adjusting behavior ahead of actual tariff implementation.
Beyond this soft-hard data divide, another trend deserves attention: the convergence of PMIs on both sides of the Atlantic. This convergence—combined with new European fiscal measures—argues for a narrowing growth gap and, consequently, a reduction in the European equity market’s valuation discount compared to its U.S. counterpart (currently 20% on a sector-neutral basis, versus a historical 10%).
In the end, this supports an increased allocation to Europe in global portfolios. It’s worth recalling that the U.S. now represents 65% of global equity indices—up from 45% after the Global Financial Crisis…
*Latest Bank of America investor survey.
Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in May 7th, 2025.
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