GLOBAL SUMMER EARNINGS
SIZZLE OR FIZZLE?
Burt White Chief Investment Officer, LPL Financial | Matthew E. Peterson Chief Wealth Strategist, LPL Financial
Can overseas earnings continue to grow and extend the first-half rally in many international markets? That is the question investors are asking as second quarter 2017 earnings season begins. Since the financial crisis of 2008, U.S. companies and equity markets have generally outperformed their overseas peers. Greater U.S. profitability and corporate efficiency have resulted in stronger earnings growth, and domestic equity markets outperforming overseas ones. That may be starting to change, as earnings growth is improving overseas and international markets are outperforming domestic market indexes.
Now that Europe is past the potentially upsetting elections in the Netherlands and France with little volatility, the market will be focusing on earnings. European corporate earnings had been weak until the fourth quarter of 2016, which continued the trend of strong fourth quarters, even in weak years [Figure 1]Despite a strong finish in 2016, for the year European corporate earnings had declined -5.4% in U.S. dollar terms. Unlike in other years, earnings started strong in 2017, with annual earnings growth of 15% through the rst quarter of 2017. Expectations were high, and 62% of companies outperformed expectations, far better than recent performance. The single largest contributor to growth came from energy companies, which bene ted from the rebound in oil prices over the past year. Other sectors also showed strength, with earnings improvements in basic materials, consumer companies, as well as financials.