European earnings remain supportive for stocks – Financial Times

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Bad news is almost always more eye-catching than good reports.

Utility company EDF and Altice, the telecoms operator, are just two big-name European companies that could testify to that, having seen their shares hit, at least in the short term, after underwhelming third-quarter earnings reports.

With the corporate reporting season past its peak, the deeper tend is more reassuring according to Morgan Stanley’s regular monitoring of earnings.

But it is not without caveats.

The US bank concludes that “11 per cent more companies have beaten earnings per share (EPS) than missed, better than the 5 per cent seen in the second quarter”.

That leaves Europe poised to deliver more EPS beats than misses for the 11th consecutive quarter.

Nonetheless, Matthew Garman, equity strategist, points out that there has also been a trend for guidance on EPS to be lowered.

“From a sector perspective, commodities are the only area seeing net upgrades at present as financials are now seeing modest downgrades. Defensives and non-commodity cyclicals remain at the bottom of the pack.”

The trend for strong corporate earnings has been a mainstay of the rally that has taken European stock markets higher this year, lifting the Euro Stoxx 600 about 7 per cent in 2017.

High valuations on indices around the region mean any turn in the trend for strong earnings could hurt.

michael.hunter@ft.com

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