A rather more benign mood has settled over markets after the rocky start to the year. There seem to be three main reasons for this – first, the trend in economic data has been more reassuring, second the threat of a trade war has slipped down in the media and, third, the geo political background has calmed down. Whatever the reasons are, though, it is a relief to have passed through such a volatile period.
With some of the ‘big picture’ worries fading, attention can turn to more practical matters and, for now, that means corporate earnings. Both in Europe and in the US, we are seeing the latest batch of earnings reports coming in. In Europe, whilst there has been quite a dispersion in the results they have, on the whole, been seen as a positive by investors. With the recent comments from the European Central Bank being interpreted positively, too, and robust purchasing managers’ indices, it was no surprise to see equity indices rise.
In the US, it was also a busy week for earnings. There, indices had a tougher time and slipped back. The industrials sector showed it has had a tough time and Caterpillar shares took a big hit. However, this time last year we had been wary about earnings so it has been reassuring to see that, on the whole, they expanded (according to FactSet) by some 23% against last year. The question we would pose is simply this – is this as good as it gets? Are we at peak earnings and, if so, where does the US equity market go from here?
How long this period of calm will last is anyone’s guess. Hopefully rather longer than the brief British spring sunshine at least. Our suspicion is that investor sentiment is rather more fragile than it may appear. That would suggest that if there is any bad news we may see further sharp wobbles. But this is old news and something we have expected for some time. For the time being, we welcome a return to more stable times. Long may they last.
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