European fourth-quarter earnings are running slightly ahead of expectations, with year-on-year earnings per share growth tracking at 2% compared to consensus forecasts of a 2% decline, according to Bank of America. The upside surprise is dominated by financials and industrials, while technology has been the main drag on overall performance.

Despite the modest beat, the overall momentum remains muted. Excluding financials, earnings growth is running about seven percentage points lower at -5%, weighed down by healthcare, energy, and consumer sectors. The breadth of earnings beats is notably weak, with only 47% of companies beating EPS estimates so far - the second-lowest level in five years and below the long-run average of 53%.

Market reactions to earnings misses have been particularly harsh, with stocks missing estimates suffering a median one-day underperformance of 2.2% - the sharpest since 2012. Even companies that beat expectations saw a slight negative reaction of 0.1%, which would mark the first negative print since early 2022 if sustained. Germany has recorded the highest country beat rate at 67%, while Spain and Italy lag significantly at 20% and 33% respectively.