What's going on?
Analysts are predicting a big profit turnaround when European companies start reporting third-quarter earnings later this week, but there are a few reasons to be skeptical stock prices will follow suit…
What does this mean?
It’s true: analysts have been increasing their third-quarter profit expectations for Europe’s companies lately, much like we’ve seen their Stateside colleagues do across the pond. But the bar’s also been set remarkably low: European companies’ profits, after all, plunged by a massive 61% in the second quarter compared to the same period last year. And while profits are forecast to be higher this time around, they’re still expected to be 29% lower on average than they were the same time last year. Oof.
Why should I care?
For markets: The winners and the losers.
Analysts reckon travel and leisure companies – still suffering from the pandemic-induced restrictions – are set to report some pretty bleak numbers, but carmakers, they’ve said, should see the biggest rebound. And they’re not the only companies with a brighter future to look forward to: health technology firm Philips posted better-than-expected earnings on Monday, largely thanks to the COVID-driven demand for respiratory care devices. Its shares rose on the news – though frustrated investors might’ve missed out on the chance to take advantage when a glitch caused a three-hour outage of European stock markets. This is becoming a bit of a habit: both Japan and Mexico’s main stock exchanges suffered their own technical outages earlier in the month.
The bigger picture: Come on – impress us.
It’s worth pointing out that the main European stock index is up 31% from its March lows, suggesting analysts have already bought up stocks to reflect their climbing expectations. So if stock prices are going to stand any chance of moving any higher, investors might need hard proof that companies are going to keep growing their earnings – which, in this climate, could be hard to come by.