3 out of 10 companies had reported 4Q earnings at the end of last week. On average, 51% beat EPS expectations and 47% did better on sales expectations.
Quant analyst at Bank of America Merrill Lynch digged deeper and uncovered the following trends:
« Sector Top are Oil & Gas (91% EPS beat) and Technology (67%), while Industrials (37%) and Telecoms (25%) are at the bottom.
Countries are Italy (71%) and France (67%) while Switzerland (43%) and Denmark (14%) are worst. »
Style is lead by Value (67%), ahead of Growth (55%) and Risk (54%). Quality lags (50%) but Size is the worst (38%).
« The recent equity market correction has been driven more by defensive sectors than cyclical sectors. This may be in part down to earnings results: 63% of Telecoms stocks and 47% of Healthcare stocks have missed EPS expectations. »
Another feature of the current earnings season is that misses are severely sanctioned.
« Misses have seen near-record losses, underperforming by 3.3% in the 5 days following reporting. So far there have been 27 profit warnings this quarter, lower than previous quarter. But these names have underperformed by 18% in the following 5 days – a record amount. »
Per SocGen’s real good quant team led by Andrew Lapthorne, « the use of the ‘Fear Index’ (VIX) as a predictor of future market performance has been rather mixed, with moves in VIX appearing more contemporaneous than forward looking. »
Well if VIX is not a great predictor of market returns what is ?
Markets have been unnerved by rising interest rates in the US, with ripple effects around the world. The most staggering event has happened on the VIX market with a number of funds/ETNs making the headlines after having lost tons of money. What should investors take from these events ? A couple of reflections and interesting comments seen here and there. Continuer la lecture de « Putting Recent Market Sell-off in Perspective »
Rule of thumb: the more expensive a financial asset is, the lower its prospective return. That’s simple. But sentiment and markets can become and stay irrational longer than investors can stay solvant, they say. So if you cannot predict when the markets will turn, it’s probably better to check where the risks are and monitor them the best you can. And invest with a margin of safety. Always…
« We recalibrate our top-down earnings model as it had been persistently underestimating the turn in operational leverage. We now see 10% EPS growth in 2018. Consensus estimates are 8.9%, but adjusting for the average upward bias, underlying « true » consensus may be as low as c.2%. We see modest P/E re-rating to 15.7x from 15.0x currently. For the FTSE 100, we are more conservative and target 7,900 end-2018 (c.6% upside). »
« Upside risks: Equities re-rate to previous cycle peak valuations. This would point to c.33% upside from the current levels. European corporates re-gear to US levels. US investors return (net buying peaked in May). European M&A picks up, currently running c.30% below the US. Effective French labour market reform. »
« Downside Risks: Rates and bond yields rise too sharply. But a gradual move would likely be manageable – Europe has very little Tech (6% of index) and a large amount of positively rate sensitive Financials (c.25% of index). Significant Euro strength, on our forecasts (EUR/USD 1.25 end 2018) this is manageable. Higher volatility / political risks in Spain and Italy. »