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Euro Stoxx 50 Earnings So Far...

May 01, 2018

Is There Value in Large-Cap Europe?

In the aggregate for 1Q2018, the Euro Stoxx 50 has posted a decline in earnings of 7.34% Y/Y. This is in notable contrast to the S&P 500 where earnings growth (for companies that have reported) has increased 25.6% for 1Q2018. Though it is early in the 1Q2018 earnings season, more than half of the companies in the Euro Stoxx 50 have released earnings (28 of the 50 stocks in the Euro Stoxx 50 have reported). Numerous firms released earnings this quarter that were negative, which would characteristically set a negative tone for large-cap European equities. Paradoxically, the Euro Stoxx 50 has advanced more than the S&P 500 this quarter (+5.98% vs +0.35%), despite weaker earnings results for its constituents.

Earnings growth has been negative for most sectors of the Euro Stoxx 50 sectors.  Prominently, earnings growth for the Euro Stoxx 50 financial sector was materially negative (-11.9% Y/Y vs. expectations for +5.43% Y/Y). Weakness in banks, driven heavily by the underperformance of firms such as Deutsche Bank, has weighed down the earnings results for large-cap European financials. The telecommunications sector performance has been even more disappointing, with first quarter earnings falling 12.29% on a Y/Y basis. Electronic technology stocks have been a dramatic underperformer, with earnings declining 29.85% in the first quarter, Y/Y.

The Euro Stoxx 50 energy sector is bucking the trend of earnings declines, posting a 19.79% increase in earnings for 1Q2018. A global rotation into energy in 2018 has helped to boost profit growth in the Euro Stoxx 50 energy sector.

Despite the poor earnings growth in 1Q2018 for European-large cap equities, expectations are for growth to reaccelerate, with CY2018 earnings forecasted to growth +6.83% Y/Y. 

For investors interested in increasing exposure to large-cap European equities, FEZ is an ETF that tracks the Euro Stoxx 50. If you would like a more rifle shot approach not driven by market capitalization, you can use the Quantamize Balanced European Consumer “sleeve” found on our Q-Folio page.

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