Markets may depend on these corporate profits
Important information: The value of investments and the income from them can go down as well as up, so you can get back less than what you invested.
The quarterly corporate earnings season, which begins in earnest this week, will be important for a number of reasons. This should prove to be a high watermark for profit growth due to easy year-over-year comparisons with the same time frame in 2020. Lockdown conditions, business closures and low oil prices have taken their toll. caused a temporary drop in revenues and profits during the April to June quarter. Last year.
According to the latest estimates, European companies may have increased their profits even more sharply than their American counterparts in the last quarter. Analysts believe European company profits may have been up to 109% higher than three months ago, while US profits are expected to have grown at a relatively quiet 64% annual rate.1.
As always, the markets will probably want to look through high absolute numbers. Comparisons with market forecasts – which have become more optimistic throughout the year – will be much more important.
A weak dollar could be a problem. It will have reduced the profits of large UK companies which derive high proportions – up to 75% for FTSE 100 companies – from overseas markets. It will also have exacerbated the upward pressure on input costs for American companies (a weaker dollar pushes up the dollar prices of raw materials).
Profit seasons can help ‘best-in-class’ funds and fund managers who focus on companies capable of generating positive unexpected earnings in their processes to stay ahead of the game. However, the risks associated with these approaches may also be greater if the benefits do not reach the expected levels.