Focus: The earnings season catalyst
Global Q3 earnings season starts Wednesday, and is more important than ever. Growth worries are high, and earnings expectations low. Luckily, we see another strong earnings beat, above the +29% S&P 500 consensus growth, led by energy, materials, and industrials. Europe’s growth may be even stronger, given its greater sensitivity to the GDP recovery. Earnings forecasts have room to rise, helping the market, whilst valuations have already fallen a long way.
Some market relief
In another volatile week, markets saw some inflation relief, as the oil surge eased, and lower Washington DC dysfunction, as politicians made a temporary debt deal. US bond yields rose to 1.6% and the US dollar was firm. Chinese ADRs also saw some overdue relief. We expect bond yields
to rise modestly more, driving further rotation to cyclicals. See our global markets presentation here for background.
Leading the tech race
Technology has become the dominant driver of investment returns, putting a focus on who does it well. Four trends are clear from the latest World Digital Competitiveness survey. 1) The US dominates tech competitiveness, in 1st place for the fourth year, 2) Asia is surging, with China up 15 places in only four years. More surprising is 3) the dominance of smaller ‘start-up’ countries, and 4) Europe’s strong showing.
Japan, the world’s forgotten market
Japan (EWJ) is the world’s 3rd largest economy, 2nd largest stock market, and best major Q3 performer. But it is chronically overlooked. Only 12% of our Retail investor survey saw it as one of the best markets, despite its cheap valuation, low correlation with other markets (which helps in pullbacks), and world beating stocks, from Toyota (TM) to Sony (SONY). But it has deflation, poor demographics, and high debt. This makes it a bottom-up stock pickers market.
Bitcoin back over $50,000. All eyes on Shiba
Bitcoin (BTC) surged back over $50,000, again showing a low correlation with volatile equities. Decentralised meme token Shiba (SHIBxM) surged over 200% after a Elon Musk tweet, taking its market capitalisation over $9bn.
‘Gas-ageddon’ stokes inflation fears
Energy prices surged, after OPEC+ meeting left production unchanged, stoking inflation fears. Cotton was also up strongly on the unintended consequences of US-China trade tensions. Energy winners are the self-sufficient US, Saudi Arabia, Russia, Canada; gas exporters like Shell (RDS.L), Cheniere (LNG), Gazprom (OGZDL.L); and broad smart portfolio OilWorldWide.
The week ahead: Kicking off earnings
1) JP Morgan (JPM) and US financials unofficially kick off the crucial Q3 global earnings season on Wednesday. 2) Wednesday also see’s the latest Fed meeting minutes, as they consider tapering bond purchases, and CPI inflation, estimated at a high 5.3%. 3) China exports (+29%) and producer prices (+9.8%) with slower economy.
Our key views: Looking through the volatility
We see a positive outlook of 1) vaccine rollout and economic re-opening, and 2) still huge policy support, offsetting virus third wave and Fed tightening risks. We like assets helped by this growth: equities, commodities, crypto, and are cautious fixed income, and the USD.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.