by Macroview News of the euro area QE programme being expanded helped all stock markets to stage a rebound. After a testing September, financial markets benefited from the boost from news of a forthcoming expansion in the ECB’s QE programme. On the US side of the Atlantic, the Fed postponed its first interest rate hike. European stock markets were also buoyed by the weak euro. The Stoxx Europe 600 rebounded by 8.1% in October, propelled upwards by German shares (up 12.3%). In contrast, the Swiss market was left behind (+4.7%), penalised by uncertainties facing the Swiss National Bank in light of the ECB’s forthcoming shift in stance. The S&P 500 was just as dynamic as Europe, regaining 8.4% in October. The across-the-board rise in share prices came against a backdrop of earnings forecasts still being downgraded. European company profits are projected to grow by 7.9% in 2016, after +4.7% this year. The consensus is looking for 8.1% growth in US companies’ earnings in 2016 after a 0.6% rise in 2015. Japanese profits are forecast to increase by 8.1% in 2016, after 18.5% this year. Equity markets are not going to be able to press on much higher if earnings growth estimates are being revised downwards non-stop. P/E 2016 ratios are currently pitched at 15.1x for Europe, 16.5x for the US and 13.8x for Japan.
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News of the euro area QE programme being expanded helped all stock markets to stage a rebound.
After a testing September, financial markets benefited from the boost from news of a forthcoming expansion in the ECB’s QE programme.
On the US side of the Atlantic, the Fed postponed its first interest rate hike. European stock markets were also buoyed by the weak euro. The Stoxx Europe 600 rebounded by 8.1% in October, propelled upwards by German shares (up 12.3%). In contrast, the Swiss market was left behind (+4.7%), penalised by uncertainties facing the Swiss National Bank in light of the ECB’s forthcoming shift in stance.
The S&P 500 was just as dynamic as Europe, regaining 8.4% in October. The across-the-board rise in share prices came against a backdrop of earnings forecasts still being downgraded. European company profits are projected to grow by 7.9% in 2016, after +4.7% this year. The consensus is looking for 8.1% growth in US companies’ earnings in 2016 after a 0.6% rise in 2015. Japanese profits are forecast to increase by 8.1% in 2016, after 18.5% this year. Equity markets are not going to be able to press on much higher if earnings growth estimates are being revised downwards non-stop. P/E 2016 ratios are currently pitched at 15.1x for Europe, 16.5x for the US and 13.8x for Japan.
The lesson we have learned in 2015 has been that room for multiples to expand is limited in times of uncertainty.