And, while there have been a number of surprises both on the upside and the downside, in many respects they have both been in areas in which one would expect.
Jacob de Tushe-Lec, manager of the Artemis Global Income Fund said that, in general earnings season is coming in in line with what is expected. But, he added, what is interesting is that those companies that are beating expectations are being rewarded, more than perhaps they have been, while those that underperform and being hit hard.
“The dispersion between the winners and the losers is getting bigger,” he said.
Benjamin Matthews, investment analyst at Heartwood Investment Management said, that when reviewing third quarter earnings, it is important to remain aware of the headwinds US corporates have faced recently, in particular, the falling oil price and the slowdown in China.
It is important, he said, to try to look beyond the headline numbers, which are being heavily influenced by the weakness of the Energy, Materials and Industrials sectors.
“At present, the remaining seven sectors are all reporting or projected to report year-over-year growth in revenue and all sectors, excluding Financials, are positively surprising in aggregate on the earnings front,” he said.
In positive terms, Matthews said, the big stories have come from the technology sector , while, on the negative side, as was to be expected much of the weakness came from the energy, mining and industrials sectors.
“The main negative surprise has been the weakness of the Banks and a few isolated stocks such as Walmart,” he added
“The Banks have suffered as a result of weak volumes within fixed income and commodities trading divisions, lower investment management revenues due to market volatility, and simply the fact that in the post-Lehman world, Banks have been required to build up capital on their balance sheets, which has hit their income statements,” he added.
From an allocation point of view, the results so far, have reinforced Heartwood’s decision to keep US a large part of its overall equity exposure within its higher risk strategies and, explicitly playing technology as a theme.
“We are of the view that the underlying US economy remains on solid foundations and we expect this to start feeding through to corporate earnings. Companies have faced significant headwinds with a strong dollar and uncertainty surrounding the global growth outlook, however we are starting to see some positive developments on the earnings front, which should be supportive for equity markets going forward,” he said.
