Earnings seasons on both sides of the Pond have offered better-than-expected performance – in the United States, earnings growth has outperformed expectations, and in Europe, earnings have shrunk less than expected.
Last week, the equity markets levelled out slightly after a strong start to the year. Especially in Europe, the equity market has developed strongly, while in the US, the markets were somewhat more subdued. Stock prices have clearly risen also in China. Recently, interest rates on European government bonds have been on a modest rise. One possible reason for this is the potential increase in budget deficits due to the expected increase in defence expenditure.
On the foreign exchange market, the strengthening of the dollar has stopped, at least for now, and in February the euro has strengthened moderately against the dollar. On the raw material market, the price of oil has fallen again to the figures at the beginning of the year after a small price spike in January, while the price of gold has risen steadily throughout the beginning of the year.
In the US, the fourth quarter earnings season has been strong, with around 85% of companies having reported their earnings. Earnings growth in the US has been 11 per cent, and average net sales growth 5 per cent, both of which have exceeded expectations.
Growth has been particularly strong in the financial sector and among companies offering communication services, such as Alphabet and Meta. Earnings in the consumer discretionary sector have also grown, which is largely explained by Amazon’s solid growth.
Earnings growth has been especially strong among the Magnificent Seven companies, which have become familiar to investors. Their earnings have increased on average around 25 per cent, with only NVIDIA’s earnings report to be published on 26 February.
The European earnings season started a little later than the US earnings season, and around half of the companies have reported their earnings so far. In Europe, earnings have shrunk by an average of around 7 per cent, but the development has, nevertheless, been stronger than expected. The growth in turnover has been around four percent, which is only a fraction behind the five percent growth of US companies.
The earnings decline in Europe is explained by the weaker earnings of basic industry, especially steel and energy companies. In terms of industry, however, major earnings improvements were also seen from a few individual companies.
The peace talks regarding Russia’s war of aggression in Ukraine and President Donald Trump’s tariff-driven trade policy have dominated news headlines recently.
According to various betting services, the probability of a ceasefire in Russia’s war of aggression against Ukraine has decreased in recent days, but a ceasefire in 2025 is still given a probability of more than 50 percent. The possibility of peace in Ukraine has boosted the shares of especially European banks and other companies in the financial sector.
The markets also closely monitor trade policy, as President Trump has imposed several new tariffs during his first weeks in office. For example, Trump has threatened to impose new 25 percent tariffs on cars, which would be a challenge for European car manufacturers, who are already facing challenges.
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