Quarterly Results: A Beacon in the Fog

The situation is unprecedented: on top of the U.S. President’s tariff initiative came the longest federal government shutdown (43 days). As a result, the various statistical agencies are only now beginning to release indicators for September, and those for October—including the employment report—will simply be skipped altogether. While waiting to analyse the data for November and December, investors have naturally turned to companies to navigate through the macroeconomic fog and gain insight into the current environment and its key aggregates: consumption, capital expenditure, and employment.

The aggregated quarterly figures contrast sharply with the prevailing anxiety. Indeed, the U.S. earnings season has been undeniably strong, judging by the percentage of positive earnings surprises (80% vs. a 75% historical average). But unlike in previous quarters, consensus expectations were not revised downward ahead of time, which makes the quality of the results even more remarkable: +14% in the third quarter (vs. Q3 2024), roughly twice the initial forecasts. With such numbers, European companies can hardly compete. And even if the magnitude of surprises is smaller (55%, in line with the average), the fact that aggregate EPS grew over the quarter is already a positive outcome (+1%).

A granular, sector-by-sector analysis cuts through the narrative: the technology and telecommunications sectors drove U.S. EPS growth this quarter, buoyed by strong performances from Nvidia, Microsoft and Google. Less publicized, however, financials delivered even stronger results, with 25% growth over the same period. More broadly, the growth gap between the Mag7 and the rest of the U.S. market has narrowed (23% vs. 12%), signalling the beginning of a normalization in the growth rates of American megacaps.

In Europe, the pattern is similar, with banks leading the pack thanks to a combination of higher revenues, controlled costs and low provisions. Technology and real estate also belong to the very small group of sectors posting growth this quarter. All others contributed negatively, with consumer discretionary collapsing over the period (–50%). Under such conditions, it is easy to understand why the European banking sector has outperformed the broader market this year.

With the labour market approaching what Federal Reserve Governor Christopher Waller calls “stall speed,” the earnings season also offered investors an opportunity to gauge the health of the U.S. consumer. Several companies are reporting weaker demand in categories such as travel, autos and restaurants. Meanwhile, Walmart and Starbucks note stable or improving trends, suggesting market-share gains for players with sufficient scale—and, more generally, a two-speed marketplace. This is a microeconomic illustration of the U.S. consumer’s K-shaped* growth pattern.

Press releases and earnings calls also gave management teams a chance to revisit the cross-cutting theme of AI, which—together with shareholder returns and margin evolution—is one of the season’s central topics. The media has widely echoed the hyperscalers’ capex announcements, but a review of transcripts shows, at an aggregate level, expectations of operational gains (notably in the energy and consumer discretionary sectors) and an improvement in end demand for industrials, the “picks and shovels” of this new revolution. Finally, it is worth noting that workforce reductions came dead last among the topics discussed, contrary to what headlines might suggest.

No review would be complete without examining the market’s reaction to earnings beats and misses. And it is precisely here that the balance between Europe and the United States shifts. While European stocks reacted in a relatively balanced way across positive and negative surprises, U.S. reactions were heavily skewed to the downside. Companies that beat expectations struggled to gain traction, while those that missed were sharply punished. This is a stark reminder that U.S. market valuation multiples** leave little room for disappointment.

With the earnings season now behind us, it is reasonable to consider that results are fully priced in, and investors will naturally shift their focus to 2026. In this regard, consensus expectations for next year are fairly similar across the two regions***. However, the breakdown of expected growth reveals a broader set of contributors in Europe (consumer discretionary, financials, industrials…), whereas in the United States, technology unsurprisingly remains the main engine due to its weight in the index.

While in recent years the U.S. market has delivered higher earnings growth than Europe, the ongoing government initiatives (notably in Germany), combined with companies’ operating leverage, lend credibility to current expectations. In this context, if the growth gap between the two major regions remains unchanged in 2026, this will mechanically lead to a reduction in the European equity market’s valuation discount, which currently stands at historically high levels****.

* Since the latest market correction linked to Liberation Day, confidence among high-income households has strengthened while that of low-income households has weakened—producing the typical K-shaped configuration of a two-speed economy.
** 12-month forward P/E ratio of 22x for the S&P 500.
*** +14.2% expected for the S&P 500 vs. +11.7% for the Stoxx 600.
**** Discount greater than 25% for the 12-month forward P/E on sector-neutral basis, removing bias effects.

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in December 5th, 2025.

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