Home Knightsbridge Insights Commentary: Paul Ebeling on Wall Street, Q-2 Earnings’ Season Kicksoff

Commentary: Paul Ebeling on Wall Street, Q-2 Earnings’ Season Kicksoff

by Paul Ebeling

#WallStreet#PaulEbeling

$DIA $SPY $QQQ $RUTX $VXX

Investors should be focused on 3 Key Q’s for companies heading into earnings season: How firms will maintain profit margins given rising input costs and supply chain shortages, how companies plan to prioritize cash spending, and how policy uncertainties especially around taxes affect their outlooks. 

Major companies will begin releasing their Q-2 results Tuesday with the big banks JPMorgan Chase and Goldman Sachs. With results driven by strengthening consumer demand as VirusCasedemic-related restrictions eased early this yr, S&P 500 companies are expected to see aggregate earnings grow by 67% over last yr, according to FactSet. This would accelerate from Q-1’s growth rate of about 50% and mark the fastest pace for the index since Y 2009.

Also this wk Fed Chairman Powell testifies before Congress with his semi-annual Monetary Policy Report Wednesday and Thursday. Stay tuned

Overall Outlook Worldwide

For all the dominance of megacap growth names, American stocks led the world during the cyclical upswing in 1-H of the year and that means regions outside the US are primed for a catch-up.

Take Europe, with a far more economically sensitive equity market, a vaccine roll-out finally closing the gap to the US and business activity gathering speed, firms from Lombard Odier to BlackRock Inc. are recommending investors boost their exposure to the region.

The post-virus chaos growth relay has shifted from China to the US and to the Euro zone.

At the same time, a US index of value shares outpaced a rest-of-world gauge by more than 6%, according to MSCI Inc. indexes.

  • S&P 500 +16.3% YTD
  • Russell 2000 +15.5% YTD
  • NAS Comp +14.1% YTD
  • DJIA+13.9% YTD

It all means European shares look cheap. Members of the Stoxx 600 trade at less than 17X expected earnings Vs 2!X for stocks in the S&P 500.

In the UK it is even more dramatic; FTSE 100 Index companies trade at an average of 13X the coming year’s earnings.

“Eurozone and UK equities still trade at relatively cheap multiples, despite their exposures to both the global recovery and the reflation themes,” the chief investment officer at Lombard Odier, wrote in a note. “These are where we see the greatest likely benefits from economic re-openings, an acceleration in relative earnings momentum as well as attractive valuations.”

And while European equity funds drew $16-B last Quarter, the strongest flows in 4yrs they stand to gain even more given $230-B of outflows over the last 3yrs.

It helps that the region’s economic growth is also likely to accelerate: European Union officials markedly raised their outlook for the Euro-area economy last wk.

“We see a sizeable pickup in activity helped by accelerating vaccinations,” BlackRock Investment Institute strategists wrote in their mid-year outlook this week, as they shifted to overweight on European shares and to neutral on US equities. “Valuations remain attractive relative to history and investor inflows into the region are only just starting to pick up.”

The Bull case depends on a conviction that economic momentum is poised to accelerate.

Treasury yields sunk to a four-month low last wk, and a long-short value strategy is down again in July after sliding the most since January 2020 last month. Giant growth shares like Amazon.com Inc. and Apple Inc, the kind Europe does not have.

Strong EPS momentum should provide further support for global equities in 2-H of Y 2021. The UK looks like a good value trade.

Remember, it is your money, so your responsibility, pay attention.

Have a prosperous week, Keep the Faith!

You may also like

logo-white

Your Trusted Source for Capital Markets & Related News

© 2024 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.