- Two thirds of EU and US firms reported results. EU fared less well than the US. Beats are not so negative but yoy growth is -22% and -8%, respectively. The median stock result is better: -5% for EU and +1.7% for the US.
- Q2 results will be much worse – bottom of the cycle in a base case scenario – but analysts expect growth in Q3 to remain lower vs Q1: there is still a long way to go for earnings’ downgrades.
- Our earnings forecasts for 2020 and 2021 remain below consensus and have risks tilted on the downside.
- Recovery uncertainties, a possible second wave of contagion, geopolitical frictions plus lack of unity in the euro area do not bode well for earnings revisions in the next months.
- Concerning sector earnings growth (yoy), consumer services, pharma, staples, IT and utilities were better than discretionary, energy, financials and industrials.
- At the EM market level, the most export-oriented EM countries (Korean, Taiwan), which fared well through the COVID crisis, have disappointed the least. They have shown twice as high the ratio of positive to total surprises (65%) vs other EM markets covered (Brazil, China, India) but Q2 would be a more severe test.
- Overall, we maintain an OW on equities, having reduced it significantly after the rally.
- While market valuation looks stretched short term, we see positive total returns over one year, even incorporating huge earnings downside in 2020 and lower earnings recovery in 2021 compared to previous post-recession periods.