While there has been an understandable focus on the outlook for inflation and interest rates in recent months, earnings are a key blank in the global equity outlook.
The latest batch of earnings results in the US and Europe confirms that the global earnings cycle continues to be strong, with operating leverage (and pricing power) still more than compensating for the widely canvassed pick-up in cost pressures.
The US third-quarter reporting season is now well over 90% complete, with actual earnings soundly beating expectations yet again. Over the past month, Q3 actual earnings growth has been upgraded from 27% to 39% year-on-year (YoY) growth.
Analysts currently expect earnings growth of just over 20% for Q4 (this is too low in our view), which translates to earnings growth of more than 40% for the full year CY21.
Growth is then expected to moderate significantly in CY22 as year-over-year comparisons become more challenging.
While the US earnings season has captured the bulk of the attention, UK/European earnings remain something of an undiscovered story in our view. European earnings continue a powerful revival with ongoing upgrades. European earnings have been in upgrade mode now for 14 months. This places the current upgrade cycle just behind a record 15 month run in 2003/04. In this week’s report ex cover:
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