Overview of Guidance Cuts#
According to Bank of America (BofA), guidance cuts among European companies are currently at their lowest level in five years. This trend is attributed to softer demand and specific challenges faced by individual companies. In the latest earnings season for Q4 2025, there have been 16 guidance cuts and 3 profit warnings, marking the lowest figures since early 2021.
Improved Outlook for Some Companies#
Interestingly, the number of companies raising their earnings outlook has also increased. BofA strategist Paulina Strzelinska notes that the ratio of upgraded guidance to total revisions has reached 0.63, the highest since the second quarter of 2023. This indicates that while some companies are cautious, others are feeling more optimistic about their future performance.
Caution Amid Global Conflicts#
Despite the relatively low number of guidance cuts, many companies remain cautious about the overall economic outlook, particularly due to the ongoing conflict in the Middle East. Strzelinska emphasizes that it is still too early to determine the operational impact of this situation, and the effects will largely depend on the duration of the disruption. An example of this caution is airline Wizz Air, which has warned of a potential €50 million hit to its net income due to the conflict.
Potential Impact of Rising Energy Costs#
BofA also analyzed the potential effects of a significant rise in energy prices. If energy costs were to increase by 50%, the bank estimates that earnings per share for European equities could see a modest decline. Specifically, the Europe Stoxx 600 index could drop by about 1.7%, while the MSCI Europe index might fall by approximately 3.8%. The sectors most likely to be affected include Construction & Materials, Travel & Leisure, and Utilities, with companies in Spain and those globally exposed to energy prices facing the largest earnings impacts.
Capital Flows into European Markets#
On a positive note, capital flows into European markets have remained strong. Last week, Europe-focused equity funds saw inflows of $0.82 billion, with passive funds attracting most of the demand, while active funds experienced further outflows.