Update Equities: Slowing growth dominates earnings season
Last week, equity markets were driven by various economic, corporate and geopolitical factors. We are also in the midst of the earnings season, with about a quarter of US and European companies having reported their results. Next week some of the major technology companies, known as the "Magnificent Seven," will release their earnings reports.
From the earnings results reported so far, we see a slowdown in demand, especially in the industrials sector. Various companies are indicating that short-cycle orders, which are orders executed within a year, are under pressure. On the other hand, long-cycle orders, such as infrastructure or large marine projects, are still doing well.
Economic growth in the eurozone is now at a slower pace compared to previous quarters. Inflation also remains a significant concern. Other issues include labour shortages and wage growth, which pressure corporate earnings, as well as geopolitical tensions and the pace and scale of future interest rate changes.
On the other hand, the US economy exhibits strong growth, although notable challenges exist. GDP growth remains strong at an annualized rate of 3.1%, driven by consumer spending and resilient corporate earnings, especially in the technology and services sectors. However, inflation persists and is raising concerns about purchasing power and future monetary policy.
For the longer term, we expect the start of a multiyear global capital expenditure cycle. Investments in low carbon, artificial intelligence, data infrastructure and the electric grid are expected to drive the economy in the mid-term.
Looking at specific earnings releases from last week, Coca-Cola disappointed in terms of its volume outlook and must rely on its innovation and marketing power to stimulate demand. Unilever saw the efforts of its new CEO to accelerate growth resulting in better-than-expected revenues. Roche shares were up after good pharmaceutical sales and anticipated trial results for Alzheimer’s medicines. Thales saw accelerating growth, especially in its defence division, with orders up by 40%. This is related to the war in Ukraine, but the company also saw strong orders from other sources. Tesla had a surprisingly good quarter. The Cybertruck contributed positively to results. Lower material costs also helped, but the main driver for the share price (+11%) was the outlook that for next year Tesla expects a 30% growth in sold vehicles.
Jan Wirken
