“Eurozone earnings for 2025 have seen persistent downgrades over the last year. But projections for next year are much higher, at nearly 15%, on a combination of easy base effects, an improving macro backdrop, rising liquidity, a better China outlook and fiscal stimulus,” Matejka noted.
For starters, the European Central Bank’s (ECB) accommodative monetary policy is expected to support credit growth and money supply in the region, thereby boosting activity and driving earnings higher. In addition, any pickup in consumer confidence should further bolster profitability.
Plus, increased fiscal spending in Germany — which was to some extent delayed due to the late passage of the 2025 budget — should finally kick in and support European growth and earnings going forward. “After the initial excitement over the German stimulus at the start of the year, investors were quick to fade the trade. We note that J.P. Morgan Global Research’s basket of German plays, excluding defense names, has unwound all of its year-to-date gains relative to the broader market,” Matejka said. “However, with government spending expected to pick up, we expect these names to start performing better once again.”
Finally, China’s improving domestic outlook could spell good news for European stocks. “European earnings and activity tend to be leveraged to China. As such, the encouraging policy developments in China, along with rising liquidity and the positive wealth effect, should support European luxury names,” Matejka added.
