Earnings

It’s amazing how quickly the narrative changes. The sell-off last week was accompanied by cat calls in the media as the sharp suits of Wall Street got their pips squeezed. Cue many articles about the rising influence of stay-at-home day traders throwing down chips into a casino-like market. It all got a little Wild West. Indeed for those companies that were reporting earnings, there was no escaping the spittle and fur. Beats on the top, and the bottom line, got washed out. The market did not care, echoing the eerie environment around the peak of the last Tech bubble. What is likely to sweeten the porridge of money mangers though, is that the whipsawing of share prices had little to do with fundamentals. Valuation dispersions also remain stretched, and whilst brokers’ ‘sentiment indicators’ may suggest a correction, there are many interesting stories to be found. Turn down the noise and listen to what companies are saying. NXP reported a shiny set of results this week with revenues up, fuelled by strong demand across industrial and mobile, and a sharp ramp in automotive. ON Semiconductor is also riding the wave, talking of “strong improvements in business trends” and “lean inventories”. And it’s not just semis. Microsoft all but blew the doors off, with growth accelerating across the business and management highlighting the “dawn of a second wave of digital transformation”. Facebook was another, a market heavyweight that more than delivered the goods, with bulls jabbering with excitement about a clear step change in e-commerce penetration. From Microsoft to Facebook, Caterpillar to United Rentals, the message from the C-suite has been encouraging. It’s no surprise then that brokers analysing the earnings transcripts talk of corporate sentiment jumping to a record high. And all this during a week that J&J announced a single-shot vaccine that can be stored in a fridge, and news of a Novavax vaccine that may well turn out to be much more positive than the initial headlines made out. When the vaccines do start to roll out in size and begin to bend the data for hospitalisations, the improvement could well be fast. Whilst parts of the market are pricing in an economic rebound, many others are not.