Highlights:

• The Q4 earnings reporting season has just started in the US (13 reported), with yoy growth being so far slightly below Q3 (25% vs 26%). Overall, analysts expect yoy growth to be 22% in Q4 vs 43% in Q3.  
• With increasing signs of a peaking cycle and lower momentum in capacity utilization, the yoy growth will decelerate till 2022Q2.
• The Omicron variant would affect companies’ earnings guidance through some additional restrictions, lingering supply chain disruptions and lower propensity to buy during Christmas holidays.  
• That said, we still expect a positive backdrop for earnings in Q4, as macro surprises have increased since September. EA earnings will benefit from weaker TW euro, while US ones are penalized by stronger TW USD.  
• Furthermore, solid pricing power and growth will keep margins upbeat. Amid strong demand and high excess savings, rising input costs are passed to consumers. 
• In our base scenario of Omicron representing a non-disruptive event, the 2022 will be positive for equities due to a sustained nominal GDP growth triggering an earnings growth of 10% (around consensus). We stay below our models’ results (+12-14%) due to possible lower margins via the cited lower capacity utilization, high-for-longer input costs, wage lifts and lower deficit spending vs 2021.  
• We see an average total return of 7%, notwithstanding a mild PE compression (-4%) due to a more mature phase of the cycle, lower policy support and high inflation environment. Negative real bond yields will continue to score badly vs. positive equity ones. 

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