EARNINGS GROWTH DESPITE ECONOMIC SLUMP? INSIGHTS FROM THE REPORTING SEASON
Despite higher interest rates and other negative factors, the major stock indices are holding up surprisingly well. Probably the most important factor for long-term price gains is the further course of corporate earnings. As they do every quarter, companies around the world opened their books again and reported on current trends. Read on for our findings and conclusions.
DISAPPOINTMENTS MORE PRONOUNCED IN EUROPE AND IN CYCLICAL SECTORS
Typically, the majority of companies exceed (usually cautiously set) expectations. However, in the Q2 2023 reporting season, only about one in two companies in Europe beat earnings expectations. In particular, there were disappointments in the cyclical commodities sector, as the overall economy weakened, and commodity prices declined significantly from the high levels of 2022. Companies in the construction and real estate sectors are also suffering from the difficult economic and interest rate environment.
CONTINUED STRUCTURAL GROWTH IN MANY KEY INDEX SEGMENTS, PARTICULARLY IN THE US MARKETS
However, the earnings season was significantly better on the US stock market. Almost 80% of the companies here beat market expectations. This clearly shows the stronger focus of the US indices on growth sectors. In the IT sector, almost 9 out of 10 companies were able to exceed expectations. The artificial intelligence sector in particular continues to be booming. The American AI chip manufacturer NVIDIAwas again able to exceed sales and earnings expectations by more than 20%, but other IT companies such as Alphabet and Amazon also excelled with strong profits. Companies from the defensive healthcare and consumer sectors delivered similarly good results. After all, even in a more difficult economic environment, people hardly ever cut back on necessities.
TO SUMMARIZE: GO FOR STOCK SEGMENTS WITH “SPECIAL ECONOMIC CONDITIONS”
It is true that the economic outlook has been dampened. Factors such as high interest rates and the battered real estate sector will continue to weigh on the markets. However, for many companies, some of which are highly weighted in the indices, this does not mean an inevitable collapse in profits. In the current market environment, companies whose profit development is structural in nature and less dependent on the ups and downs of the economic situation should continue to perform well. These quality stocks can thus withstand the headwind of rising interest rates and remain a suitable investment alternative.
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