European Q2 Earnings Growth Came in Near 21%. Nobody Noticed Because Nvidia Reported the Same Month

The EURO STOXX 50 is up around 13% year to date and sitting at record highs. The DAX crossed 26,450 for the first time. If you only read US market coverage, you would not know either happened.

Here is a fact that has been almost entirely absent from retail investing coverage this summer: analysts raised their expectations for STOXX 600 second-quarter earnings growth to almost 21%, up from 12.5% back in May.

That is not a small revision. That is analysts discovering, mid-quarter, that European companies were considerably more profitable than they thought.

The index response was what you would expect. The EURO STOXX 50 traded at record highs above 6,560 points, up roughly 13% year to date. Germany's DAX crossed 26,450 for the first time in its history. France's CAC 40 sat around 8,740. Italy's FTSE MIB also reached record levels.

Meanwhile, English-language market coverage spent August on Nvidia, Jackson Hole, and whether the Fed will hike.

The part that should make you uncomfortable

Europe is doing this while its central bank is tightening.

The ECB raised rates in June 2026 — its first hike in three years — taking the main refinancing rate to 2.40% and the deposit facility to 2.25%. It held in July, unanimously, but explicitly warned that "the July pause should not be interpreted as the end of the tightening cycle."

The instinctive model most investors carry is simple: rate hikes are bad for stocks. Europe just spent a quarter demonstrating that the model is incomplete.

Equity prices are a function of two things — expected cash flows and the rate used to discount them. Rising rates lift the denominator. But if the numerator rises faster, the stock goes up anyway. Earnings growth accelerating from 12.5% to nearly 21% expectations is the numerator moving decisively.

This is worth internalising because the same logic applies to your US holdings in reverse. The parts of the American market most vulnerable to higher rates are the ones with the least current earnings and the most value sitting in distant future cash flows.

Why the story stayed invisible

Three reasons, none of them about the merits.

Coverage follows attention, and attention follows AI. A quarter of broad-based European industrial and financial earnings strength does not generate the same volume of copy as one semiconductor earnings call.

August is structurally quiet in Europe. Much of the continent is on holiday, trading volumes thin out, and the financial press covers less. It also means the rally happened on light volume, which is a genuine caveat.

Home bias. North American investors overwhelmingly hold North American assets, and coverage is written for the audience that exists.

None of that changes the numbers.

What this means for your portfolio

If you own a total-international or all-world index fund, you already participated. This is the quiet argument for global diversification: the region that outperforms in a given stretch is not knowable in advance, and owning all of them means you do not have to guess. You captured this without reading a single European headline.

If you own only US index funds, you did not. That is a defensible choice — the S&P 500 has rewarded it for over a decade — but it is a choice, not a default, and it is worth making deliberately.

Do not chase it now. A region up 13% year to date on a large earnings revision is not an obvious entry point. Records are made continuously in rising markets; the useful question is whether your allocation is where you want it, not whether Europe is hot.

Understand what European exposure actually gives you. Less software and semiconductor concentration, more banks, industrials, luxury goods and energy. That is a genuinely different return profile from the S&P 500 — which is the point of holding it.

The risks that could end this

The two flagged most consistently are thin liquidity, which magnifies the impact of any shock in a low-volume month, and energy prices. A Middle East energy shock would reignite inflation pressure and complicate the ECB's path back to 2% — and the ECB has said directly that "the longer energy prices remain elevated, the more likely they are to drive up broader inflation through indirect effects."

Eurozone inflation was 2.8% in June. The margin for another energy shock is thin.

What to watch next

• The September ECB decision and whether the pause becomes a second hike.
• Q3 earnings revisions. A 21% growth expectation sets a high bar to clear.
• European energy prices, the single clearest transmission channel into both inflation and margins.
• Whether the earnings strength broadens beyond the sectors that drove it, or narrows.

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