- Q3 expectations still indicate a gloomy yearly growth, albeit slowly recovering from Q2.
- Analysts’ estimates have improved slightly over the last weeks, more significantly in the US.
- The first reported results in the US (19 firms, 4% of total) and Japan (3%) show better growth and surprises when compared to the same number of firms in Q2.
- We observe some fatigue – also due to increasing Covid contagions – in selected economic indicators (i.e. macro surprises in the euro area), with earnings revisions being near a cyclical peak. That said, the recovery triggered by the policy support will remain the dominating theme for investors in the next months.
- In this respect, we notice stabilizing capacity utilization, good Chinese momentum as well as EM exports bouncing back. The ISM and the IFO indicators remain high and overall supportive for the continuation of the earnings recovery although we cannot exclude some weakness in momentum ahead.
- Short term, we maintain a slight OW on equities due to lingering supportive policy action, improving GDP and earnings momentum and expect positive mid-single digit total returns in 12 months. Risks: lower economic momentum, Covid 2nd wave, US elections and geopolitical risks.