Tariffs are hitting European firms hard. Here are the sectors to watch as earnings kick off

European second-quarter earnings are anticipated to show a modest 0.2% annualized decline in earnings per share for the Stoxx 600, according to LSEG I/B/E/S research, amidst broader macro-economic uncertainty driven by U.S. trade tariffs. Investors will particularly monitor the Energy, cyclical consumer, and financial sectors during this reporting season.

Analysis

The upcoming European second-quarter earnings season is framed by significant macro-economic uncertainty, primarily driven by U.S. trade tariffs. Consensus estimates from LSEG I/B/E/S reflect a cautious outlook, projecting a 0.2% year-over-year decline in earnings per share for the benchmark Stoxx 600 index. This slightly negative forecast places a heightened focus on sector-specific performance, with market participants expected to closely scrutinize reports from the Energy, cyclical consumer, and financial sectors. These areas are considered particularly sensitive to the prevailing economic climate and will serve as key bellwethers for the broader market's resilience or vulnerability to trade-related headwinds.

Key Decisions for Investors

• Investors should review exposure to European cyclicals, particularly in the Energy, consumer, and financial sectors, as they are highlighted as most vulnerable to the current macro-economic pressures.
• Given the forecast for a slight earnings contraction and prevailing uncertainty, a defensive portfolio tilt may be warranted until the tangible impact of trade tariffs on corporate profitability is clarified.
• Monitor for earnings surprises relative to the modest -0.2% EPS decline forecast, as companies that significantly beat this low bar may be disproportionately rewarded, while any misses could be severely punished.