Q3 EARNINGS SEASON STARTS WELL. EXPECT STABILIZATION IN REVISIONS MOMENTUM BUT RECOVERY WILL CONTINUE

Highlights:

  • 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.

Download the full publication below

Q3 EARNINGS SEASON STARTS WELL. EXPECT STABILIZATION IN REVISIONS MOMENTUM BUT RECOVERY WILL CONTINUE

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis. Currently, among European equity sectors, financials, energy, telecoms, and autos look undervalued while Pharma, utilities and software appear overvalued.
CHINA’S RECOVERY CONTINUED BUT A BIT SOFTER THAN EXPECTED
China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.