Europe has just recorded its best reporting season in years, a notable shift for a region whose corporate profits had stagnated.

Companies in the benchmark Stoxx Europe 600 index boosted earnings per share by 18% on average in the second quarter compared with a year earlier. The increase stands in sharp contrast to the recent past: earnings barely grew at all in 2025 and 2024, when the strongest companies in the index were offset by weaker players. For analysts, breadth is a key gauge of durability: gains driven by a narrow set of companies leave an index more exposed if those leaders stumble, while broad-based earnings growth tends to signal a more widely shared corporate upswing.

Nor is the improvement confined to a small set of market leaders. According to Gerry Fowler, who leads the European equity strategy team at UBS, growth is now extending beyond the narrow group of AI and bank stocks that had previously driven it. Government spending and private investment in priorities such as infrastructure, energy security and defense are creating real opportunities for companies across the region. The backdrop for that spending has shifted markedly: in 2025 Germany amended its constitutional debt rules to exempt defense outlays above 1% of GDP and set up a €500 billion infrastructure fund, the European Union created a €150 billion loan program for defense investment, and NATO members agreed to target 5% of GDP in defense and defense-related spending by 2035.

Equity markets have begun to reflect the change. The Stoxx Europe 600 is up 10% so far this year, a bit less than the S&P 500's 12% gain. European stocks have underperformed their U.S. counterparts since the mid-2000s, a gap often attributed to sector mix: European indices carry heavier weightings in banks, industrials and energy and relatively few of the large technology companies that powered U.S. markets. That gap has narrowed lately — raising the question of whether the European turnaround has finally arrived, and whether coming reporting seasons confirm that earnings growth has durably broadened. European shares have also typically traded at lower valuation multiples than U.S. peers, one reason the WSJ's report framed the region as an overlooked place to hunt for bargains.

The Stoxx Europe 600 aggregates large-, mid- and small-capitalization companies from across European equity markets and is widely used as a standard gauge of the region's corporate performance. The S&P 500 serves an equivalent benchmark role for U.S. large-cap stocks. UBS, where Fowler heads the European equity strategy team, is a Swiss global bank whose research groups track regional markets.

The original report was published by The Wall Street Journal (more from the WSJ). The item was highlighted by the economics blog Marginal Revolution.