Would Markets Blow off Good Q3 Earnings?
By United Capital Research
The lingering conception about markets is that “profits drive prices”. Yet, the Q2-18 earnings season turned this truth on its head; despite earnings growth of more than 3 percent, market performance was largely underwhelming as investors had more on their minds than just bottom-line profits.
Among the concerns were the strong US dollar and rising US interest rates which shifted the direction of global appetite for risk, not to mention rising political uncertainties triggered by a spat between the ruling APC and opposition PDP, following a spree of defections of party members.
As the Q3-18 earnings season gains momentum, investors want to know if markets would blow off good Q3 earnings, especially with oil prices above $80/bbl and some level of clarity in the political space (Atiku vs Buhari) ahead of the 2019 election.
Markets can ignore earnings but not for long. That being so, we expect market sentiment to start reverting to fundamentals. Though we highlight that structural weaknesses exist; FMCG’s are bogged with heavy financing and operating costs while downstream companies face capped margins.
There is also the case of rising bond yields in the US (benchmark 10-year Treasury yield recently touched a 7-year high). Again, Investors’ would have a lot to deal with than just bottom-line profits.