Investing.com -- UBS has raised its conviction on European equities ahead of the second-quarter earnings season, citing potential company-specific outperformance despite broadly muted expectations across the region.
According to UBS’s European Equity Strategy update, Q2 earnings growth for Corporate Europe is projected to remain “quite muted,” with full-year 2025 forecasts revised down to 2% amid ongoing pressure from trade tariffs and adverse currency movements.
The brokerage flags that earnings growth in Europe has stagnated, showing no improvement from 2022 to the present and reflecting a longer trend of flat performance from 2010 to 2016.
Despite the subdued macro backdrop, UBS maintains that the medium-term outlook remains constructive, expecting a return to earnings growth in 2026.
Analysts believe this will be driven by cyclical sectors exposed to fiscal stimulus and a recovery in consumer spending. In the near term, however, investor focus will shift to company-level earnings surprises and forward-looking commentary.
UBS analysts have conducted a cross-sector review to identify companies likely to diverge from consensus expectations.
They have flagged 21 companies as positioned to deliver positive surprises and 10 where caution is warranted.
These selections are informed by sector-specific earnings forecasts and crowding scores from UBS Quant Research, which measure investor positioning intensity.
The brokerage emphasizes that even modest earnings beats or reaffirmed guidance could result in favorable market reactions, given the low bar set for the quarter.
Among the broader market, UBS notes that any commentary that provides visibility into 2026 could be particularly well received by investors.
The analysts reflect a tactical rather than structural shift in sentiment. While headline growth may remain elusive this year, companies demonstrating cost control, operational resilience, or sector-specific momentum are seen as potential outperformers.
UBS’s increased conviction is not based on a macro recovery, but on granular earnings dynamics.
The upcoming earnings season is expected to serve as a litmus test for the “Case for Europe,” as investor sentiment remains cautious but valuations offer selective appeal.