Like every start of a quarter, the time comes for companies to take the exam on the theme of the last three months. As is almost the norm, the first American banks will unofficially open the results season for the third quarter of the year this Friday, even if others like Pepsi or Domino’s are ahead of this date.
This earnings season comes at a complex time. On the one hand, geopolitical tensions have further increased in recent days after the Iranian attack against Israel and the latter’s incursion into Lebanese territory. Despite this, stock markets have not reflected greater risk aversion on the part of investors, despite some declines in Europe last week.
At the same time, investors are also exiting debt assets and, even, the 10-year American bond increased again during this Monday’s session to reach 4% profitability (fall in prices), which does not hadn’t happened since August 1st.
Without a doubt, what really determines the tone of the markets are interest rate expectations, which have cooled these days with the good employment figures in the United States, which reduce pressure on the Fed for another reduction of 50 points at the next meeting.
With stock markets maxed out and valuations too, the only justification left for the market is the expectation of an earnings surge that will dampen multiples and, therefore, put the arguments in the service of the stock market bulls.
Thus, analysts have set the bar for passing the exam in earnings per share growth of just over 8% compared to the same period last year, which means once again exceeding the historical record (see graph). This 8% improvement is the largest in two years.
If we look at how the forecasts for the whole year have evolved, for this year the consensus of analysts expects that 237 dollars per share will be reached, which is a number 10% more than reported in 2023which was already the largest since data existed.
“The last earnings season ended with positive surprises, demonstrating remarkable margin resilience and strong capital returns,” underlines Barclays. “On the other hand, we perceive a cautious sentiment in the investment announcements [capex]”, they add. “We expect weaker performances from cyclical sectors and positive surprises in technology and semiconductors”, they conclude. “North American companies have achieved the objectives set so far now, which were ambitious, and the probability of a recession remains low.”, they argue in Bank of America.
“US stocks remain the most attractive asset for investors thanks to strong economic growth, corporate profits and the flow of investments into AI,” they explain in Evli. “The market positively values this profit growth and greater economic stability in a context of falling rates,” they add.
More volatility
Heightened tensions in the Middle East sent stock markets tumbling last week and increased volatility. above 20 pointslevels still far from the stock market shock of early August. “Israeli retaliation will not be neutral for the market, which on the other hand continues to expect what will happen during the American elections next month,” explains Bankinter. “This Friday, JP Morgan and Wells Fargo will present their results and they should be powerful, which could introduce a desire for a rebound a week after which we will already be too close to the elections to hope that the rebound will continue,” they add.
On this side of the Atlantic, a better earnings season than the third quarter of 2023 is also expected. Concretely, analysts calculate only earnings per share. will increase by more than 6%at 9.4 euros, in line with the 2022 result, which was the best in the history of the Stoxx 600. For the whole year, it should beat the 2022 record by predicting profit up 1.6% than last year.
