Chart Of The Week - Global Equities Ex-Growth
Summary
- Earnings momentum loses steam as a growth scare permeates the corporate landscape.
- Rising policy rates and expanding credit spreads make for an uneasy financial environment.
- The market evolves toward an ex-growth period.
franckreporter/E+ via Getty Images
Global Earnings Revisions — Market Going “ex-Growth”?
This chart shows the breadth of earnings revisions momentum (ratio of upgrades to downgrades and rate of change in forward earnings) across all the countries that the data is available for (using Refinitiv I/B/E/S data - the gold standard in analyst consensus earnings estimates). Basically, it shows the pulse in earnings revisions at a global level.
The key point is across countries there is a clear loss in earnings momentum. There was the initial drop during the pandemic panic, followed by a massive surge thanks to stimulus and reopening. Pandemic winners e.g. tech, also saw a substantial one-off surge in earnings as the global wave of lockdowns and work-from-home triggered a mass-adoption of tech and sped up a number of existing trends.
But now those tailwinds have been and gone, and what’s worse: the past stimulus tailwinds are now turning to headwinds as central banks hike rates, bond yields surge, and cost pressures bite as an inflationary shock takes hold. And for earnings growth, we know the base comparator matters, and now the hurdle for achieving the same rate of growth has been set higher.
In many ways then the market is moving into a period of “ex-growth”, as those past boosters to earnings now come home to roost as long-term symptoms of the pandemic. You might say that earnings are set to suffer the effects of long Covid! With that comes the end of the stimulus driven bull market.
Topdown Charts, Datastream
Key point
Global equities risk further downside as the market goes ex-growth.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (1)
