European Stocks Face Decades-Worst Penalties for Missed Earnings

Goldman Sachs has revealed that European stocks are facing the harshest penalties in decades for missing earnings expectations this quarter. The bank's data indicates that companies in the STOXX Europe 600 index that failed to meet earnings expectations or issued profit warnings have underperformed the broader market by 2.3 percentage points, marking the worst performance since records began in 2005.

Market tolerance for weak earnings reports is extremely low, as analysts had already lowered expectations ahead of the earnings season to account for the chaos and uncertainty caused by U.S. tariffs. Despite this, the current earnings season has been riddled with profit warnings from various sectors, including pharmaceuticals, automotive, and consumer goods. French automaker Renault saw its stock plummet by 18% after lowering its operating profit margin forecast for 2025. German sportswear company Puma also experienced a significant drop of 16% following its earnings report, with some analysts warning of a "survival identity crisis." The most notable profit warning came from Danish pharmaceutical company Novo Nordisk, which abruptly lowered its guidance, causing its market capitalization to evaporate by over $90 billion.

Goldman Sachs strategists Peter Oppenheimer and Sharon Bell noted in a report, "Market optimism for European growth has been partially digested. This may mean that the market is more fragile in the face of downside risks and disappointment."

Despite the market's harsh reaction, the overall performance of this earnings season has actually exceeded expectations. Over 80% of companies in the MSCI Europe index have reported their earnings, with second-quarter earnings per share remaining relatively stable compared to the previous year, contrary to analysts' expectations of a 4.8% year-over-year decline.

However, the STOXX Europe 600 index continues to struggle to regain its March high. After outperforming the S&P 500 index in the first quarter, the European benchmark index has lagged behind in the past three months as investors have shifted their focus back to the robust U.S. economy, drawing funds away from European markets.

Concerns over the impact of U.S. tariffs on the eurozone economy are also weighing on European investor sentiment. Last week, the announcement of new tariffs by U.S. President Trump on several countries, including Switzerland, led to the STOXX Europe 600 index experiencing its largest single-day decline since April.