Goldman Sachs' latest European equity strategy report points out that rising energy prices triggered by the Middle East conflict are driving a sharp divergence in earnings expectations for European listed companies. Since the start of this conflict, analysts have cumulatively revised upwards their 2026 earnings per share (EPS) forecasts for the European energy sector by 112%, the technology sector by 11.4%, and the Stoxx 600 index as a whole by 9.3%. Meanwhile, the travel and leisure sector has been revised downwards by 21%, and the automotive and parts sector by 36%, significantly widening the gap between sectors.
Goldman Sachs believes that energy and basic resource companies directly benefit from rising commodity prices, and some chemical and industrial companies can also pass on costs through price increases, keeping the overall index's earnings resilient. However, persistently high energy prices may gradually weaken consumer purchasing power and corporate profit margins, and the impact of cost pressures on earnings has a lag. During the 2022 energy shock, earnings expectations for the energy and chemical sectors were rapidly revised upwards, but approximately 6-12 months later, as commodity prices fell and cost pressures became apparent, earnings forecasts for these sectors began to decline.
Goldman Sachs expects a similar second phase of impact from this energy shock: the energy sector will continue to support overall index earnings, but if demand slows and companies’ pricing power weakens, profit margins for companies outside the financial and commodities sectors may come under further pressure.
