Europe's earnings engine is broadening

Yet it looks investors are still underestimating the outlook.

UBS argues the cheapest opportunities remain in sectors where earnings revisions are still moving higher, notably semis, capital goods and banks.

UBS also believes bond yields have peaked, at least tactically.

If the drag from higher rates fades and earnings expectations hold up, it sees scope for the STOXX 600 to re-rate to 16 times from less than 15 currently.

The bank retains its index .STOXX targets of 690 for 2026 and 760 for 2027, implying upside of roughly 7% and 18%, respectively, from current levels.

Europe's earnings story is becoming broader and potentially more durable.

UBS says the capacity boom linked to data centres, defence, infrastructure and grids is now showing up simultaneously in orders, company guidance and analyst forecasts.

Consensus expects close to 20% EPS growth this year and, crucially, "the breadth behind it (semis, capital goods, banks, utilities, mining) is what makes it durable," write Gerry Fowler and Sutanya Chedda, strategists at the Swiss bank.

The macro backdrop is supportive too.

UBS points to a second straight month of data consistent with an expansion regime, with sector-weighted PMI new orders firmly in growth territory.

"Expansion regimes have historically been the most reliable upside environment for European equities, and the signal is no longer offset by a single deteriorating sector," they add.

Meanwhile, a survey this morning showed euro zone business activity accelerated this month at its fastest rate in over three years, confounding expectations for a slowdown.