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The worst earnings season ever

A breakdown in earnings is what everyone is already expecting. Any seasoned corporate leader will take the opportunity to get rid of any legacy issues, such as goodwill and other intangible assets. Christian Gattiker, Head of Research, explains his view on what's moving global markets.

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While you were sleeping on Monday, Chinese stocks made you almost 6% on the day – at least if you were outside the Asian time zone. Asian investors got only 1% while sleeping (at the opening) and the rest during trading. Yet this links back to our comments here two weeks ago, and to our general stance, that staying invested is the default position. But as a reminder, we should take this experience as another piece of evidence that it is quite hard to time the market, and you better be there before it takes off.

The sceptics, of course, abound, and the earnings season is the next excuse to stay on the sidelines. Yet a breakdown in earnings is what everyone is already expecting. The drop is expected at about -45% for the broad US bellwether index compared to last year’s Q2. Any seasoned corporate leader will take the opportunity to get rid of any legacy issues, such as goodwill and other intangible assets. Covid-19 is an excuse for any clean-up whatsoever. So against this backdrop, it will likely be more telling how markets react rather than what the numbers will exactly look like. For those corporates with a positive share price reaction, the message is ‘the worst is over, and the stage is set for improvement’. For all others, it is ‘back to your desks’. But even with this company by company assessment, do not expect a broad-based weakness, as 60% of the pre-announcers have surprised to the upside in just the past few days.

For those corporates with a positive share price reaction, the message is ‘the worst is over, and the stage is set for improvement’.

Christian Gattiker, Head of Research

We admit that quarterly earnings are about short-termism, so we have updated our longer-term topics. In real estate, we see an acceleration of the trend favouring logistic property and tower and data centres at the expense of retail and hotel property. For Asian tourism and globesity, we see the longterm drivers confirmed and stick to the investment themes.