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It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
Now that earnings season is ending, we look at what the results are telling us about the wider market.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
Now the vast majority of companies have reported earnings, we’ll look at what the results are telling us about the wider market’s performance and why this matters.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest. Ratios should not be looked at in isolation.
Take a look at some of the key themes from the mega-caps of the US market.
The inflation picture in the US may be improving, but it’s still something for businesses to contend with. Second-quarter earnings showed a relatively resilient performance from sales, but earnings fell 3.2% compared to the year before.
The US consumer remained relatively resilient during this period of uncertainty, which has helped support the top line. These results suggest the area where businesses are feeling the effects is on costs, which has led to lower margins – as seen by the earnings decline.
Past performance is not a guide to the future. Source: Refinitiv Eikon 24.08.23
Sectors like Energy and Basic Materials (think miners) saw some of the biggest earnings declines. Largely a result of the energy and commodity markets coming back down to earth from some of the lofty levels seen last year. Both Consumer Discretionary and Staples did well, along with Financials which are reaping the rewards of a higher rate environment.
In total, companies reported earnings that were 8.0% ahead of expectations. So, whilst there was a decline overall, it wasn’t as bad as analysts had been expecting.
Diving a little deeper into the performance, we can see 75% of companies in the S&P 500 managed to beat earnings expectations.
Past performance is not a guide to the future. Source: Refinitiv Eikon 24.08.23
(Beat = greater that 1% ahead of expectations, Met = within 1% either higher or lower than expectations, Missed = greater than 1% below expectations)
Results weren’t quite as strong when looking at revenue, but the majority still managed to either beat or meet, expectations.
Mostly this shows us that good isn’t good enough these days.
Markets can be tricky, and sometimes companies get disproportionately punished for either meeting or missing expectations than they do on the upside if they exceed.
Source: Refinitiv Eikon 24.08.23
That’s exactly what we saw over the second quarter. The share price reactions to those that beat earnings expectations were of a much smaller magnitude than those that either hit or missed. Part of that is valuations, which have popped since midway through last year.
Source: Refinitiv Eikon 24.08.23
We’re not back at the heights of the 2020/21 period, but valuations do look like they’re getting a little full. And so, despite the tricky backdrop, pressure is still firmly on to deliver performance beyond expectations. But there are no guarantees and past performance is not a guide to the future.
With the recent run-up, now could be a good time to look at your US exposure and make sure you’re diversified enough to meet your own risk needs.
Learn more about Diversification
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This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
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