A modest reporting season is expected. Estimates for 2019 remain too high versus our own

The Q4 reporting season has started (15% of US firms reported, only 4% in the EU). Earnings growth in the US vs previous quarter looks lower (yoy), remaining solid in absolute terms, while it is weaker in Japan (10% reported).

Highlights:

  • The Q4 reporting season has started (15% of US firms reported, only 4% in the EU). Earnings growth in the US vs previous quarter looks lower (yoy), remaining solid in absolute terms, while it is weaker in Japan (10% reported).
  • We expect a modest reporting season overall, which is to start from a lower base as analysts have already slashed their estimates down quite aggressively since October.
  • Analysts expect yearly growth rates to continue to decrease for both earnings and sales, reaching a trough in Q3 2019.
  • We agree on such a declining pattern, but expect the final 2019 outcome for earnings to be lower than current forecasts: nearly half of the consensus (2-4% for both the US and EMU vs 6% and 8.6%, respectively), with risks pointing to the downside.
  • We base our forecast on our regression models’ output (+4%) from December which we should decrease to take into account lower macro surprises since then and continuing political uncertainty. The latter is to weigh on firms’ confidence and then GDP growth.
  • Overall, for 2019 we see total returns highly volatile and only slightly positive thanks to dividend yields. Short term, investors’ sentiment had deteriorated sharply, raising chances of the continuing rebound albeit with limited upside from here.
  • Indeed, market sentiment is currently sustained by a more dovish central banks’ stance, easing policies in China (both fiscal and monetary), lower Brexit risks (a delay of exit date from March looks more probable) and, lastly, increasing expectations of a China-US truce by early March.

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A MODEST REPORTING SEASON IS EXPECTED. ESTIMATES FOR 2019 REMAIN TOO HIGH
VERSUS OUR OWN

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