‘I don’t set trends. I just find out what they are and exploit them’ – Dick Clark
The most exciting – and busy – time of the quarter is upon us once again with the onset of the corporate earnings season. New information is a big driver for all shares, so what are the five big trends to look out over the next few weeks?
- Trade realities – how are companies seeing the impact of higher tariffs and world trade trash talk by some politicians around the world? So far markets have been fairly sanguine that this will all blow over but there is nothing that concentrates the mind better for investors than a company pointing to actual impacts on their earnings and cash flow generation capabilities.
- Inflation – are higher prices creeping up the worry list for companies as labour shortages, higher oil prices and foreign exchange changes impact? Or can they offset any pressures through efficiency gains and higher prices?
- Europe – of particular importance naturally to many UK and Continental European corporates are the realities on-the-ground in the pan-European economy which suffered a poor first quarter due to weather and other impacts. Has there been a bounceback thanks to easy comparisons or have issues ranging from Brexit to Italy’s elections and much more continued to impact?
- Emerging markets – a good deal of pessimism has built up towards the emerging market equity, bond and currency markets in recent months influenced by the aforementioned global trade concerns as well as the impact of the higher US dollar. Has this had any impact or are underlying business realities still much more glass half full?
- Company specifics – all the above many appear to suggest that ‘bigger picture’ issues continue to dominate and influence investment thinking. However another building theme in financial market is the growing importance – and relative performance – of picking individual stocks rather than just buying an index tracking fund. For this to continue, a clearer performance dichotomy between corporate names who perform or guide better on the above issues and deliver versus their targets and corporate objectives, will have to be apparent.
So much to look forward to over upcoming weeks. Suffice to say our holdings in the Dynamic Opportunities Fund reflect our belief that they will be judged more favourably during and after the upcoming earnings on the basis of the above factors.
Only one portfolio change to note during the last week as we added to our Barclays position in the belief that the combination of company-led change, pressure from an activist investor and a global sell-off in financial sector shares on global economy hopes being edged down have provided an attractive point to augment our position. Barclays will update their latest quarterly earnings season thoughts on 2 August.