2015 is full of expectations: the dynamism of the stock market (Europe Stoxx 600 +9,9% YTD), despite Greece, suggests that investors are expecting aEurope finally ready to restart.
For the first time in the last year, the aggregate of European economic data is surprisingly positive (this happens every time the Economic Surprise Index is greater than zero, see graph) and the momentum seems to be more favorable to Europe than to the United States.
In the current context of low interest rates e expansionary monetary policies, the financial climate remains favorable to the stock market. But, as we wrote in the asset allocation of February 2015, buying opportunities are increasingly rare and, as the number of indices approaches historic highs grows, attention must be paid to the fundamentals.
So here's what the company's fourth quarter 2014 results suggest.
The US quarterly
In the USA, the two major risk factors (oil and the dollar) did not weigh excessively on corporate accounts. In aggregate, the results are in fact satisfactory and the profit margins remain above the long-term average. In addition, companies with a strong focus on the domestic market outperformed multinationals included in the S&P500 index.
At the sectoral level, the companies belonging to the sector shone Health, the industrial actions and those related toInformation Technology.
The companies related toOil & Gas they replied to drop in the price of oil reducing costs and drastically cutting investment plans. In doing so, they have managed to reward investors, but balance sheets will remain under pressure in the coming quarters as well. In fact, if between the third and fourth quarters of 2014 the average price of oil fell by 26%, at current market prices the drop could be even stronger (-30%). Furthermore, the appreciation of the dollar remains a factor of uncertainty for the management of companies.
It is probably for these two reasons that analysts are cutting their growth estimates EPS for the next quarters.
The quarterly in Europe
In Europe, however, the improvement in economic data is accompanied by strong expectations for earnings and revenue growth. For the moment, however, the data is less brilliant even if, in aggregate compared to the last quarter, European companies still seem to have made efforts to improve margins.
Il financial sector seems to remain the Achilles heel. Out of over 60 companies that belong to the financial sector (i.e. banks, insurance companies and REITs) only 23% reported growing earnings per share against an average of 60% in the sample analysed.
Indeed, in addition to companies related to the sector Oil & Gas, it is the banks that are the companies that appear to be in the greatest difficulty. Alone in Italy, in the fourth quarter, banks generated more than €7 billion of operating losses, of which €4 billion related to the Monte dei Paschi di Siena.
Invest in USA or Europe?
Our exposure to the European equity market remains conservative and (I think) lower than most players, at least according to what I read. From our point of view, in fact, under current conditions (see the summary of the assessments) it is not worth taking on the additional Europe risk – and, as you know, we pay close attention to risk management.
