While New York and San Francisco hunkered down this summer, it was possible to fly from London to Lisbon and enjoy a holiday, largely untroubled by the virus. Then in September, as many American schools stayed shut, term started on time in most of Europe.
The sunnier period on the eastern side of the Atlantic seems to be reflected in corporate results. A quarter of the way into earnings season, profits from S&P 500 companies are down 14 per cent in aggregate, according to FactSet data. Meanwhile, third-quarter earnings for the first 150 companies in the Stoxx Europe 600 to report are 20 per cent higher than in the same period last year.
Beyond the headlines there is plenty of success. Robotic lawnmowers were a big hit for Sweden’s Husqvarna as shut-ins tended their gardens. Webcam sales rose 250 per cent at Swiss maker of computer gear Logitech as office refugees set up their home workstations. Swedish medical device maker Getinge delivered more of its advanced ventilators in the quarter than it used to do in a year. Dutch chip companies ASML and BE Semiconductor reported earnings growth of more than 70 per cent. In brute force of dollars earned, meanwhile, it was an old stager of finance, Switzerland’s UBS, that produced the biggest contribution, doubling profits to $2.2bn.
The problem for Europe bulls is that, much like fading resilience to the effects of the virus — which has seen London and Paris walloped for a second time — the continent’s relative advantage is likely to dwindle before the end of earnings season.
By then, according to analysts’ estimates collated by FactSet, the Stoxx 600 companies are expected to lurch to a 31 per cent decline while the US S&P 500 companies are forecast to fall by 16 per cent.
Europe is braced for dire results from the likes of French automotive supplier Valeo as well as Lufthansa, Ryanair and Shell. Although the US has its own looming loss generators in the form of Walt Disney, Boeing and ExxonMobil, it boasts more winners from the pandemic to cushion the blow.
The US numbers already reflect Covid testing beneficiaries Quest Diagnostics, whose earnings surged more than 140 per cent, and Thermo Fisher, whose profits are up 89 per cent. Still to come are Clorox, benefiting from our newfound love of bleach, and Home Depot, enjoying the home improvement craze.
Decisive in the contest: the US still has the heavy artillery in reserve from the tech sector. Amazon’s profits are expected to be up more than 70 per cent. Fellow trillionaires Alphabet and Microsoft are also forecast to produce stronger earnings.
Looked at optimistically, neither set of results so far is as bad as expected. A few weeks ago, the Euro Stoxx 600 earnings had been forecast to fall by more than a third and the S&P 500 by more than a fifth. As Jonathan Golub, chief US equity strategist at Credit Suisse, points out, the second quarter was the biggest beat to analysts’ expectations since records began in 1990. The third quarter looks to be much stronger than anticipated too, even though forecasts have been steadily increasing. “When we have a really big beat here we have a beat on higher expectations,” notes Mr Golub.
More worrying, especially for Europe now hit hard by the second wave, is that the fourth quarter is looking tougher after the relative respite of the summer. It will be more difficult to prop up profits. Investors and executives on both sides of the Atlantic will focus more on external deliverance: economic stimulus and vaccines.
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