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1. The earnings season will provide an important test after European equities re-rated significantly in the past few months.

On top of that, expectations for economically sensitive cyclicals relative to defensives look elevated compared with readings from business surveys including the German Ifo. “The re-rating of valuation ratios for lower rates offers little cushion if earnings disappoint,” say Bloomberg Intelligence strategists Laurent Douillet and Kaidi Meng.

2. A 1% increase in GDP will translate into a 5% boost in 2026 EPS growth.

For those seeking encouraging signs, the BI strategists note that Germany’s fiscal stimulus and Europe’s defense spending support GDP growth and the outlook for profits in the region, while operating margins appear resilient. They estimate a 1% increase in GDP will translate into a 5% boost in 2026 EPS growth.

Low interest rates and increased spending are expected to feed into economic growth next year, driving a double-digit increase in earnings in 2026, almost on a par with the US. It’s a setup keeping many strategists optimistic about the next year, at least.

3. The race to power the future.

Beijing is selling clean energy to the world, Washington is pushing oil and gas.

The Trump administration wants to keep the world hooked on fossil fuels like oil and gas. The United States is the world’s largest producer of oil and the largest exporter of natural gas, offering the potential for what Mr. Trump has called an era of American “energy dominance” that eliminates dependence on foreign countries, particularly rival powers like China.

In China, more wind turbines and solar panels were installed last year than in the rest of the world combined. And China’s clean energy boom is going global. Chinese companies are building electric vehicle and battery factories in Brazil, Thailand, Morocco, Hungary and beyond. Since 2023, Chinese companies have announced $168 billion in foreign investments in clean energy manufacturing, generation and transmission, according to Climate Energy Finance, a research group.

4. European stocks with materially positive exposure to EUR strength should continue making new highs.

Sectors identified as having the most positive exposure to EUR/USD strength include Utilities, Real Estate, and Banks.

Below: MSCI Europe exposure to Euro strength by industry.

Source: Morgan Stanley

5. While the SP500 Index is at a record high in US dollar terms, in euro, the index is down 11% from its peak in February.

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