The weak start to the earnings season in Europe isn’t putting off stock buyers so far, according to strategists at HSBC.
(Bloomberg) — The weak start to the earnings season in Europe isn’t putting off stock buyers so far, according to strategists at HSBC.
“Our analysis of one-day performance shows that stocks missing forecasts have outperformed the market on the day, suggesting bad news was in the price,” strategists led by Edward Stanford wrote in a note on Wednesday.
Still, with only about a third of the earnings season done and the number of misses exceeding beats, it’s a little early for “firm conclusions,” they wrote.
The strategists noted a heavy concentration of firms in the chemicals sector that issued profit warnings, but also highlighted a diminishing share-price reaction with each new announcement. While Croda International Plc fell sharply on the day of its warning, Clariant AG, BASF SE and Wacker Chemie AG all rose after theirs.
Whether companies beat or missed their earnings forecasts, the strongest share-price gains have so far been concentrated in real estate and technology, HSBC said. The two industries have had radically different performances this year: technology was among the biggest winners, while real estate was a laggard.
But overall, Stanford and colleagues were downbeat.
The current level of beats is 49%, well below the long-term average of 55% and the worst since since the first quarter of 2020. Earnings momentum in 2023 “has been faltering,” they wrote. “Upward revisions as a proportion of all forecast changes, has been falling sharply in recent months and now stands at 50%, signifying an even split between upgrades and downgrades.”
In terms of margins, the biggest surprise disappointment came from basic materials and energy companies, they said. Both sectors were affected by the sharp drop in commodity prices since the second quarter last year.
Profit growth is running at 7.7% so far, while consensus forecasts point to a drop of 11.4% for the quarter. That suggests there’s “more disappointment to come,” the strategists wrote.
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