Q2 results look currently decent but earnings revisions remain weak. Dovish monetary policies are to compensate for earnings risk. Remain positive on equities.
US results look decent notwithstanding a softening economic cycle, as testified by the increased negative pre-announcements and negative revisions for Q2.
- The Q2 reporting season has advanced to cover about 40% in the US and Europe. Both the earnings and sales’ growth in the US stayed modestly positive (+3.7% and 5.2% yoy) at around the same level like in the quarter before. The analysts’ expectations have been beaten both for earnings and sales.
- The earnings growth in Europe (-3.4%) as well as in the EA (-7.7%) has dropped as a result of higher weight of Energy and Materials (vs the US), which suffered globally. The sales growth has slightly decreased, remaining positive.
- Ex-Energy & Material, EU yearly earnings growth is in positive territory: 9.3% and 3.8% for earnings and sales, respectively.
- For the US index, sales growth is matched by earnings’ one which could be seen as an early indication of stalling margin momentum.
- While the picture for Q2 is relatively decent, a prolonged stall in trade frictions and spikes in Brexit risk could maintain the manufacturing earnings momentum in negative territory for longer. That is why further negative revisions are not to be excluded short term.
- Overall, current consensus earnings growth expectations are to be considered still at risk. That said, given the already low revisions of the weakest sectors, the low equity positioning and, most of all, the strong dovish stance of global central banks, we maintain a positive view on equities.
- Initial results of the Indian reporting season point to improving earnings growth, with sales growth remaining solid (at 13%).