Global Equities Rise Amid An Unsurprising Earnings Season

Global Equities Rise Amid An Unsurprising Earnings Season 

The S&P 500 Index approached its historical peak and marked its third consecutive week of positive performance in mid-May. Concurrently, other major indices also experienced gains, with value stocks surpassing growth-focused equities. 

The past fortnight reflected a subdued trading environment, largely influenced by a light and unsurprising economic calendar. Notably, some individual stocks exhibited significant movements in response to first-quarter earnings announcements. For instance, Walt Disney shares declined by 9.5 per cent despite surpassing earnings expectations, attributed to concerns over a potential slowdown in subscriber growth for its online streaming segment. Similarly, Shopify witnessed an 18.6 per cent drop following predictions of decelerating revenue growth. 

"The theme of artificial intelligence remains prominent, benefiting mega-cap tech companies and the Magnificent Seven stocks in particular. The potential benefits of AI extend beyond these tech giants to companies leveraging AI to enhance operational efficiencies or explore new market opportunities". 

A significant development impacting investor sentiment was the unexpected increase in weekly jobless claims, which took precedence over the limited economic data releases during the week. Jobless claims rose to 2,31,000, marking the highest level since August of the previous year. Additionally, continuing claims reversed a downward trend, rising to 1.79 million. 

Delving into earnings season, approximately 90 per cent of S&P 500 companies have reported first-quarter earnings, surpassing analyst forecasts by 8.5 per cent. This represents the most significant positive surprise since the third quarter of the prior year, with earnings showing a 5.5 per cent growth compared to the previous year. These results are underpinned by robust albeit slightly decelerating economic growth, translating into nearly 4 per cent revenue growth. Furthermore, profitability has shown improvement following periods of pressure, primarily due to moderating input-cost inflation. 

From a sectoral perspective, communication services, consumer discretionary, and technology sectors continue to exhibit robust growth, standing out as strong performers. However, other sectors such as industrials, financials, and consumer staples are also demonstrating solid results. Notably, energy, materials, and health care are the only sectors experiencing earnings declines this quarter, with health care reflecting a quarterly accounting loss from Bristol Myers. 

In the European markets, the STOXX Europe 600 Index surged by 3.01 per cent, driven by better-than-expected corporate earnings and growing optimism regarding potential interest rate cuts by major central banks. Major European indices also posted notable gains in the past fortnight, with Germany's DAX rising by 4.28 per cent, France's CAC 40 Index by 3.29 per cent, Italy's FTSE MIB by 3.06 per cent, and the UK's FTSE 100 Index hitting a new record high with a 2.68 per cent climb. 

The Bank of England maintained its key interest rate at 5.25 per cent, signalling a potential policy easing in June. This sentiment was echoed by Deputy Governor Dave Ramsden and Swati Dhingra, who both voted for a 0.25 per cent rate cut. 

In Asia, Japan's Nikkei 225 Index and TOPIX Index experienced marginal weekly losses amid discussions from the Bank of Japan suggesting a possible early interest rate increase to counter inflation risks associated with a weakened yen. Conversely, Chinese markets rallied on hopes of economic recovery following robust holiday spending during the Labor Day holiday period, with the Shanghai Composite Index rising by 1.6 per cent and Hong Kong's Hang Seng Index by 2.64 per cent. China's April exports also showed improvement, rising 1.5 per cent year-on-year and aligning with market expectations.