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UBS has raised its outlook on European equities ahead of the second-quarter earnings season, highlighting potential upside in select company results despite muted regional forecasts. The bank’s European Equity Strategy update notes that Q2 earnings growth is expected to remain subdued, with full-year 2025 projections trimmed to just 2%. This cautious stance stems from continued macro headwinds, including trade tariffs and unfavorable currency moves.
Earnings momentum in Europe has stagnated, with no significant growth recorded since 2022—continuing a broader trend of flat performance between 2010 and 2016. Nevertheless, UBS maintains a constructive medium-term view, forecasting a return to earnings growth in 2026, driven by cyclical sectors benefiting from fiscal stimulus and improved consumer spending.
In the near term, however, the spotlight is on company-specific earnings surprises and guidance. UBS analysts have conducted a cross-sector review and identified 21 companies likely to outperform expectations and 10 names that may warrant caution. These picks are based on sector forecasts and crowding data from UBS Quant Research, which gauges investor positioning intensity.
UBS notes that even modest earnings beats or reaffirmed guidance could trigger positive stock reactions given the low expectations heading into the quarter. Commentary that offers insight into 2026 performance is expected to resonate well with investors.
The firm’s increased conviction stems not from a broad macro recovery but from differentiated earnings dynamics at the company level. As valuations across the region remain selectively attractive, the Q2 earnings season is poised to be a critical test for the “Case for Europe.” UBS believes companies showing cost discipline, resilience, or sector-specific strength could emerge as key outperformers in an otherwise cautious environment.
