FIRST Q2 EARNINGS RESULTS SHOW POSITIVE SURPRISES. EXPECT LIMITED NEGATIVE REVISIONS
Growth (yoy) is clearly negative but the magnitude should deteriorate further (to be in line with expectations) as more firms will report in the next few weeks: the next two weeks will see the bulk of reported results.
- As of today, almost 10% of companies have reported their earnings. Median sector surprises have so far been positive in the US and Europe (+14%) and flat in Japan.
- Q2 numbers will be devastating but should represent the bottom in this cycle crisis, with annual earnings growth likely turning positive again in Q1 2021.
- We cannot exclude further downside revisions to consensus but in our base scenario they should be limited: Q2 numbers are already deep in red while macro indicators have improved.
- Resuming activity will trigger a rebound in Q3 macro data, sustaining earnings revisions. But sluggish demand amid the risk of a second Covid-19 wave will keep the recovery subdued.
- Starting from the autumn the earnings momentum could lose traction. The Google mobility indices have recovered but the acceleration is already losing speed.
- Having said this, fundamentally we can still afford a limited further negative revision from here (- 3 to -4%) without having to reduce our 12-month total return targets (currently near 5%).
- We maintain a limited overweight in equities.