- We significantly cut our estimates for the US and EA and are currently 27% and 28% below the IBES consensus for the corresponding markets.
- Risk premia are near Lehman times but earnings dispersion is still worrying and both economic and earnings consensus forecasts have more room for further downside.
- Usually, after deep drops in earnings the first year of recovery sees huge earnings upside, above 30%. We are more conservative and use 20%.
- On a 12-month horizon, even using as input -38% and -30% earnings cut from peak (euro area and US resp.), we see the chance to realize double digit total returns, which encourage us to adopt a limited overweight on equities.
- Risks: postponed contagion peak and cities’ lockdown with further negative impact to the economy and earnings forecasts.