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Your Money > Investing Comment Articles > Third quarter reporting...
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By Richard Hunter
The third quarter reporting season is currently in full swing in the US and is now ramping up in the UK as well and, so far, so good. Hopes had been high for this time in the market, particularly given the meteoric rise in global markets since the March lows – the FTSE100, for example, has added 48% in that period, even allowing for the drift of the last few days. Companies had been in what was being called “balance sheet repair” mode, battening down the hatches and cutting costs to the bones wherever possible. The speed and aggression of these moves, whilst unhelpful for employment prospects, was nonetheless good news for shares and the second quarter earnings season therefore provided many pleasant surprises as compared to analysts’ expectations. This led into concerns, since such swingeing cuts were not sustainable over the longer term, that the third quarter results season could disappoint as companies failed actually to grow the top line – revenues. However, quite apart from the fact that the comparisons with this time a year ago were quite undemanding (the anniversary of the Lehmans collapse and the Lloyds/HBOS merger have both just passed), there has been a small return to some kind of normality – although there remains some way to go. In particular, the US banks (the UK banks have yet to report third quarter numbers) have again polarised into the “haves” and the “have nots”. The likes of Goldman Sachs have smashed analysts’ forecasts, with the strength of global markets playing into their hands in terms of income streams. Elsewhere, there have been US blue chips which have actually announced a small return to employing new staff, whilst in the UK the likes of BP have made their own contribution to the success of the season to date. There remain concerns, of course. Markets move neither up nor down in a straight line and yet since March it seems that the movement has been almost linear. As such, some kind of correction/pause for breath/rebalancing could well be in order. So far, though, this market is not conforming to the norm. It can be argued of course that it is often better to travel than to arrive and, as such, the market’s current estimation of future corporate success is prone to disappointment. Even so, there is much going on in favour of equity markets. A slow erosion of risk aversion by investors, extremely accommodative monetary policies by the Central Banks including some aggressive Quantitative Easing programmes and the lack of return on “vanilla” investments due to the historically low interest rates all play a part. On the economic front, there have been several examples of countries which have exited recession sooner than expected, with the US and UK expected to follow suit over the next few months (the US GDP number is announced later this week). From a global perspective, some commentators are now predicting that China will actually move into a trade deficit position next year – the connotation may sound negative, but in fact it would mean that the current import growth the country is experiencing would overtake exports, which by association would be good news for other economies. There is also something of a feeling that China itself may be transforming itself from a “nation of savers” to consumers in the global marketplace, which would have extremely positive implications for a new world economic model. So far so good – and there will be blips along the way – but the longer term picture is beginning to show some signs of stability at last. Richard J Hunter is Head of UK Equities at Hargreaves Lansdown Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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