This punishment market will be hard on Europe’s earnings slip-ups

The market can be a cruel master. That is especially true when stocks are near record highs and concerns about the economy are growing. In Europe the Stoxx 600 index is hovering close to an all-time record set earlier this year. Expectations for earnings levels remain high, even as the economic outlook weakens. There is little room for disappointment come results time. Investors are already punishing slip-ups harshly.

The growing likelihood of a Donald Trump presidency is boosting the medium-term outlook, with the potential for tax cuts, deregulation and higher government spending. That combination is helping US stock markets outperform Europe. Earnings expectations reflect this divergence too. Profit margins in Europe are expected to come under some pressure as cyclical sectors such as luxury goods wilt. US margins, in contrast, are expected to continue expanding.

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