Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Chief Investment Strategist
With 80% of the S&P 500 companies having reported Q1 earnings the broad market impact is coming to an end. The brewing setback in global equities have been halted by what looks like an optimistic outlook from the corporate sector. US companies have surprised both on revenue (1.3%) and earnings (8.7%). If we look at price impact during the earnings season then the two winning sectors against expectations have been materials and real estate. For a detailed overview of the US earnings season check our updated scorecard below.
If we look at revenue growth QoQ then Nasdaq 100 companies stand out with 8% revenue growth QoQ compared to 1.8% for European companies and 2.9% for US companies in general. Zooming out to the MSCI World Index earnings growth has been flat for a while as falling operating margin has eroded gains on revenue. As the chart below shows, the MSCI World operating margin is slowly coming back towards its historical average and we expect the headwinds on margins to continue for the foreseeable future. While global earnings have been stagnant over the past year, expectations for future earnings have been rising steadily reflecting analysts are projecting the stagnant earnings growth to continue. The Q1 earnings season is supporting this view based on the observed growth rates on revenue.
The week’s most important earnings are listed below, but if we were to highlight the most important ones to watch, then they are Palantir (tonight after the US close), Walt Disney (tomorrow, bef-mkt), Infineon Technologies (tomorrow), BP (tomorrow), Airbnb (Wed, aft-mkt), Uber (Wed), Shopify (Wed), and ARM (Wed). Of these companies the most hold stocks among Saxo clients are Palantir, Walt Disney, and Airbnb, so below we have highlighted the key expectations ahead of their earnings releases.
Key earnings this week:
Berkshire Hathaway held its annual meeting over the weekend announcing operating income up 32% QoQ and a new record cash position as the conglomerate fails to find new investments. Warren Buffett regretted his Paramount investment and even commented on AI, but the most interesting comments were on a different topic such as India.
Warren Buffett answered a question about opportunities in India with “…there are loads of opportunities there, but the question is whether Berkshire has an advantage or insights into those businesses.” The Indian equity market has been in focus in recent years as China has lost its former glory among global investors, but despite the good story about India the equity market has not been able to outperform the MSCI World Index in EUR terms since early 2010. The MSCI World Index has returned 400% while Indian equities have delivered 176% (we are comparing the Amundi MSCI India II UCITS ETF with the iShares Core MSCI World UCITS ETF). Since December 2020 the story has been a bit different with Indian equities up 52% while the MSCI World is up 29% suggesting that the post pandemic era with more focus on commodities and friend-shoring from China to other countries has changed the dynamics for India and its equity market. We have highlighted below some of the key reasons why Indian equities are interesting for the long run.
Some of the key risks to consider about India is that the country is ranking low on press freedom, have capital controls, has historically had high inflation, the political risk is higher in emerging markets, and currency risks are also something to be aware of.
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