Earnings momentum rebuilding in global equity markets
May 15, 2019

Earnings momentum is rebuilding in global equity markets, according to NN Investment Partners (NN IP).

Earnings momentum, which measures the breadth of earnings revisions based on analysts' forecasts, has recovered from a low of –0.4 in January to a current level of 0.1 in May on a scale of plus/minus 1. Momentum has been in negative territory since September 2018, having fallen steadily from a high of 0.4 in January 2018.

NN IP notes that factors driving markets have changed from the fading recession risks and dovish shift in central bank policies in Q1 to the emergence in April of economic green shoots feeding expectations of an H2 recovery.

Patrick Moonen, Principal Strategist Multi-Asset, NN Investment Partners, comments: "The combination of a recovery in growth, low inflation and easy monetary policy has created something that resembles a mini-Goldilocks environment. This also means, of course, that it will be more difficult for the market to continue its rise.

"The green shoots need to extend further to confirm that the expected H2 recovery is still underway, and after the strong four-month rally we expect a slowdown in its pace and a period of consolidation. In addition, the market enters a seasonally more difficult couple of months.

"Even if the environment does resemble a Goldilocks scenario, there are some dark clouds on the horizon that could take its shine away very quickly. Growth rates and hence the equity outlook will depend heavily on the political decisions and announcements that will be made over the coming weeks and months on Brexit and on trade."

With respect to the latter, the latest developments are not supportive for risk-taking and may warrant a cautious approach, concludes NN IP.

 

 





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Earnings momentum is rebuilding in global equity markets, according to NN Investment Partners (NN IP).

Earnings momentum, which measures the breadth of earnings revisions based on analysts' forecasts, has recovered from a low of –0.4 in January to a current level of 0.1 in May on a scale of plus/minus 1. Momentum has been in negative territory since September 2018, having fallen steadily from a high of 0.4 in January 2018.

NN IP notes that factors driving markets have changed from the fading recession risks and dovish shift in central bank policies in Q1 to the emergence in April of economic green shoots feeding expectations of an H2 recovery.

Patrick Moonen, Principal Strategist Multi-Asset, NN Investment Partners, comments: "The combination of a recovery in growth, low inflation and easy monetary policy has created something that resembles a mini-Goldilocks environment. This also means, of course, that it will be more difficult for the market to continue its rise.

"The green shoots need to extend further to confirm that the expected H2 recovery is still underway, and after the strong four-month rally we expect a slowdown in its pace and a period of consolidation. In addition, the market enters a seasonally more difficult couple of months.

"Even if the environment does resemble a Goldilocks scenario, there are some dark clouds on the horizon that could take its shine away very quickly. Growth rates and hence the equity outlook will depend heavily on the political decisions and announcements that will be made over the coming weeks and months on Brexit and on trade."

With respect to the latter, the latest developments are not supportive for risk-taking and may warrant a cautious approach, concludes NN IP.

 

 



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