By Lucy Raitano

LONDON (Reuters) – European companies are set to deliver a third straight quarter of profit growth, which may help maintain newfound investor enthusiasm for the region despite political and economic turmoil and concerns over U.S. President Donald Trump’s tariffs threat.

European stocks are trading at record highs, having outperformed Wall Street in the opening weeks of 2025, yet valuations remain low in comparison.

Investor cash has poured into the European market at the second-fastest pace in 25 years in January, according to Bank of America, even before Trump assumed the presidency and the first European company earnings began to trickle in.

Analysts are cautious, having revised their estimates for fourth-quarter earnings growth to 1.5% from the previous year – or 4.9% excluding energy – down from an estimated 2.5% just two weeks ago, according to data from LSEG I/B/E/S.

This would still mark the third consecutive quarter of expansion with forecasts indicating profit and sales growth for the first time since Q1 2023.

> “There is a high chance that if companies exceed expectations during the reporting season, share prices could rise. The potential for upside is greater than the downside,” said Matthieu Dulguerov, head of equities at REYL Intesa Sanpaolo (OTC:ISNPY).

However, with Trump threatening to impose tariffs on European Union imports and political and economic uncertainty affecting euro zone’s key growth engines – France and Germany – the mood is tense.

> “We think European management teams will err on the side of caution and give wide ranges considering the uncertainty and previous difficult years in Europe,” said Bernie Ahkong, CIO Global Multi-Strategy Alpha at UBS O’Connor, citing uncertainty around the new U.S. administration, the Chinese economy, a key market for European exporters, and geopolitics.

Luxury bellwether LVMH reports on Tuesday, Dutch computer chip equipment maker ASML (AS:ASML) on Wednesday, and Deutsche Bank (ETR:DBKGn) the following day. Danish drugmaker Novo Nordisk (NYSE:NVO) reports the week after.

LOWER BAR, EASIER BEATS

It’s early days for earnings, but already, Swiss luxury giant Richemont (SIX:CFR)’s shares recorded their biggest daily rise in 16 years on Jan. 16 after fourth-quarter sales exceeded expectations.

The latest surveys of business activity show the euro zone’s three largest economies – Germany, France, and Italy – are experiencing an industrial recession, lagging behind global surveys driven by a strong U.S. economy, which provides some cushion for European earnings.

Another factor contributing to the positive sentiment towards European stocks is the euro’s decline, which has dropped about 4.5% in the last year.

> “Many believe Europe is facing economic challenges and will have lower growth compared to the U.S. However, most European companies are not heavily reliant on European economic growth as they operate globally,” said Dulguerov.

Goldman Sachs strategists estimate that about 60% of European company revenues come from outside Europe.

European shares are trading near their largest historical discount compared to the S&P 500 index, with a forward price-to-earnings ratio of around 13.3, compared to 21.6 for U.S. stocks, according to LSEG Datastream.

Many of these factors are already considered in investors’ assumptions, and for Ahkong, the commentary around full-year guidance will be crucial for assessing specific sectors.

Investors will be analyzing company announcements for clarity on how Trump’s policies will impact results.

On Monday, Lanxess (ETR:LXSG) shares surged 5.1% after the German specialty chemicals maker forecasted its fourth-quarter core profit to exceed market expectations by more than 20%, largely due to U.S. customers pre-buying ahead of Trump’s Jan. 20 inauguration amid tariff threats.