Earnings Watch: Springtime has arrived for earnings

While the S&P 500 has regained lost terrain in terms of price, earnings estimates on the index are still far from the peak (see chart). Sentiment has improved much more for Chinese earnings (green line) with earnings estimates now above their top from the second half of last year. If one looks at sell-side analysts’ earnings revisions the past couple of weeks, European earnings stick out (orange line), having been significantly been revised higher. In other words, it seems that springtime has also arrived for equity markets and earnings estimates. 

The downside risk going into Q1 earnings season is the high expectation discounted in price levels. With earnings estimates on S&P 500 not near last year’s peak while the index price is back to the highs and the forward valuation multiple has expanded. This means that if US companies do not deliver in Q1 we could easily see the earnings season turn into headwinds for at least US equities which are also still among the most expensive in the global equity market.

The table below shows next week’s releases from the 30 largest companies among the 2,000 companies we track during the earnings season. As usual the focus will be on Friday’s earnings among US banks such as JPMorgan Chase and Wells Fargo. With the recent US yield curve inversion investors would like strong outlooks from management to offset negative earnings expectations based on yield curve inversion.

Perhaps next week’s most interesting earnings release might come from an obscure corner of the global equity market. The Swedish investment company Industrivärden reports Q1 earnings on Tuesday. The company has holdings in many of Sweden’s largest publicly listed industrials and as such has a good feeling about the outlook for manufacturing. Sweden is one of the more cyclical economies in Europe and Industrivärden’s portfolio companies have broad international exposure. It might be worth listening to what the Swedes see in the manufacturing part of the economy.