Jaume Puig (GVC Gaesco) | Practically 90% of listed companies have released their third quarter earnings, and they have been very satisfactory, in line with previous quarters.
US companies’ profits have exceeded forecasts by 4.6%, the European ones by 2% and Japanese firms by 6.7%. This has fuelled a strong rally in the stock markets in just a few weeks.
Since the end of August, the S&P 500 has risen 4.6%, the Eurostoxx 50, 5.6% and the Nikkei 225, 15.4%, with all these markets recording year highs.
Whatsmore, the Japanese bourse has returned to levels not seen since 1991 and the US market has reached all-time highs. Only the Ibex 35, hit by the Catalan issue, has remained on the sideliness of these generalised market rises.
With the results season over, it begs the question so what now? We are now at that stage of that year where the current year’s results become less of a major priority for the investor, who now focuses on the outlook for the coming year. For example, you can see how the Ibex 35 trades at 13,1 times estimated 2018 earnings, while the Eurostoxx 50 trades at 14,3 times. So there is a lot of margin for the rises to continue.
An institutional investor recently asked me if there had not already been many consecutive years of stock market rises. Absolutely, but we are in still in that phase where the business margin continues to expand, and where cost containment, in terms of labour costs as well as financial and raw material costs has not yet been abandoned.