🇪🇺🇺🇸 European companies are closing the earnings gap with U.S. counterparts, with profit growth expected to nearly match the U.S. for first time in 3+ years.

Third-quarter profits for companies in the MSCI Europe Index are forecast to surge 23% compared with last year, just one percentage point behind the 24% increase expected for S&P 500 companies.

The last time European earnings growth exceeded that of the U.S. was in early 2023.

European stocks are also on track to outperform the S&P 500 in October, helped by stronger corporate earnings and growing doubts about the sustainability of America's AI-driven stock market rally.

Tech companies account for ~38% of the S&P 500, compared with just 9% of Europe's Stoxx 600, leaving European markets less exposed to fluctuations in major AI-related stocks.

European equities are also considerably cheaper, trading at ~14x expected earnings and maintaining a ~25% valuation discount to their U.S. counterparts.

Major European companies, including Deutsche Bank, ASM International and EssilorLuxottica, have already reported stronger-than-expected results.

However, higher oil prices and weaker consumer demand continue to weigh on some European businesses, including Volkswagen and Unilever.

The narrowing earnings gap marks a big shift after years of American corporate dominance, although Europe's ability to sustain that momentum beyond the current reporting season remains uncertain.

Source: Bloomberg
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