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European corporate earnings estimates have been downgraded by analysts at the fastest pace in seven months, setting a lower bar for beats. Despite struggles with economic growth, third-quarter earnings are expected to increase by 3.7%, driven by growth in materials, financials, and utilities. The ratio of downgrades to upgrades of earnings estimates has reached its highest since February. However, some analysts believe that more optimism about the global outlook might spare shares from severe punishment for misses.
European giants like LVMH and Christian Dior are set to release their quarterly results this week, pushing earnings season into high gear. Investors are looking past weakness in China and are optimistic about the global growth outlook. China’s recent stimulus measures offer hope for the economy, which is crucial for European companies heavily reliant on exports.
The auto sector, luxury retailers, and automakers have been impacted by the weakness in China. Despite challenges in certain industries, cheap valuations and light positioning offer opportunities for investors. European companies trade at a record discount compared to their U.S. counterparts, making valuations relatively attractive.
Investor positioning in Europe is broadly neutral, with slight net short positions seen in Eurostoxx futures. Overall, European markets are not as overcrowded as U.S. markets, reducing the risk of a significant correction.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.
