Over the past week, equity market performance has been mixed. Although first-quarter earnings are generally encouraging and, for the moment, geopolitical tensions with regards to trade tariffs and the Middle East have moved to the background, the MSCI World Index traded sideways. At the same time, European equity markets have been outperforming the US, which might be counterintuitive when looking at the earnings season’s results.
The US earnings season is further underway than Europe’s. And, although not completely finished, we observe that earnings strength, in terms of both growth and positive surprises, are significantly better in the US than in Europe. The US is cruising at clear double-digit earnings growth and a significant number of companies with positive surprises, while Europe is only just reaching low to mid-single digit earnings growth levels; and there is only a limited number of companies with results that are better than expected. We believe this development is largely explained by US earnings having been helped by the Trump tax reforms and by a larger exposure to fast-growing technology companies in the US. Meanwhile, European earnings were clearly hampered by currency headwinds, with the euro strengthening more than 10% over the past year. We expect that in the coming quarters the difference between the US and Europe will narrow, as we believe the euro peaked in the first quarter.
On a company level, the results from Apple were in the spotlight this week. The results were clearly not as bad as had been feared. The market was definitely relieved when Apple provided a positive full-year guidance, while also announcing a share buyback program worth USD 100 billion.