Top of the Morning: Q4 earnings update, US equity positioning
As the Q4 earnings season unfolds, the US equity market appears robust, with more than 60% of companies beating sales estimates and around 75% surpassing earnings expectations, per the full note from UBS's Matt Tormey. The desk interprets this as a signal of underlying economic strength that could suggest a supportive environment for risk assets, especially in the context of FX markets where sentiment can shift rapidly based on equity performance. While earnings growth is on track to match expectations of 7-9%, the current market positioning could provide traders with insights into potential US dollar strength, leveraging this bullish sentiment into the foreign exchange landscape. Without any immediate high-impact calendar events on the horizon, traders should keep an eye on continued corporate guidance and economic data that may influence future positioning.
What the desk is arguing
The recent performance of US equities, as characterized by significant beats in both sales and earnings, reinforces a bullish outlook for risk assets, particularly in the FX space. Per the full note from UBS, with about 75% of S&P 500 companies exceeding earnings expectations, traders might view this as a proxy indicating resilience in the broader economy. This backdrop could bolster the US dollar against major currencies as confidence in economic health strengthens.
The data highlights a median earnings beat of approximately 3.5%, aligning with UBS's growth projections for corporate profits between 7-9%. This positive trend, especially in sectors such as financials, where net interest income and credit trends have shown strength, suggests that the economic environment supports sustained dollar strength in the near term.
Where it sits in our coverage
The consensus target for the US dollar index is currently set at 1.075, with a range spanning from 1.04 to 1.12. Notable forecasts include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, situating at the upper bound of our coverage range, while bofa presents a more cautious positioning that leans on weaker dollar expectations.
How other firms see it
Aligned firms, including jpmorgan and others, share a bullish sentiment on the dollar in light of strong earnings reports and corporate outlooks. Conversely, bofa diverges with a bearish stance that anticipates weakness in the dollar, possibly stemming from different macroeconomic projections.
Traders should monitor the EUR/USD trajectory as it may reflect the ongoing dynamics from the US equity performance while also keeping an eye on broader investor sentiment influences.
What the calendar says
With no major economic events scheduled in the coming weeks, market participants will need to remain vigilant for any shifts in corporate guidance or unexpected economic data that could alter current positioning. This lack of scheduled events suggests that traders should focus on staying attuned to the evolving earnings reports as a catalyst for potential market movement.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Over 60% of S&P 500 companies have beaten sales estimates, while approximately 75% have exceeded earnings expectations.
- 02The median earnings beat is around 3.5%, with profit growth tracking in line with UBS's 7-9% forecast.
- 03Q4 earnings are indicating economic strength, which could support risk assets and bolster the US dollar.
- 04No high-impact calendar events are scheduled for the next 30 days, keeping focus on corporate earnings and guidance.
Market implications
Traders should watch the performance of the US dollar against the euro and other major currencies, particularly in light of positive earnings data. Sustaining dollar strength could provide a favorable positioning signal for those looking to capitalize on the ongoing equity market strength.
Risks to this view
Any unexpected downturn in upcoming corporate earnings or broader economic indicators could quickly reverse market sentiment, challenging the current outlook for the US dollar. Additionally, geopolitical developments or shifts in US fiscal policy may also pose risks to the bullish thesis.
Hi everyone, Dan Cassidy here, welcome back to Top of the Morning on the UBS Market Moves podcast channel. As the Q4 corporate reporting season continues, today we will spend some time looking at how the results have been coming in, along with a look at recent performance of U.S. equities and considerations when it comes to equity positioning. Joining us for the conversation on this Friday morning, glad to welcome back from the UBS Chief Investment Office, Matt Tormey, Equity Strategist for the Americas.
With that, Matt, thank you for dropping by and for spending some time today with our listeners and clients. Welcome back. Thanks, Dan, for having me back.
So Matt, as I mentioned, we are in the thick of it with respect to the Q4 reporting season. I know this week alone we have received an abundance of reporting across multiple sectors. So can you take a moment here at the start, Matt, to share with us how the results have been coming in, along with any trends or observations you can share with us?
Yeah. So like you mentioned, Dan, we're right in the heart of the fourth quarter earnings season. So far we've had about 50% of the entire S&P 500 market cap report, and so far we would describe the results as pretty healthy, with results coming in in line with our expectations and also guidance has been encouraging.
But just running through some of the numbers real quick as of this morning, just more than 60% of companies are beating sales estimates, roughly 75% are beating earnings estimates. Also, if we look at the magnitude of the beats, the median company is beating by about 3.5%, and corporate profits are pacing to come in around in line with our expectations for 7-9% growth. Now, if we look at some of the key takeaways across sectors, starting with financials first, the overall results have been pretty good, with net interest income coming in better than expected.
Credit trends have been good, while loan growth has been a bit tepid. We're also seeing evidence of a pickup in capital markets activity, and also increased signs of buyback activity that's likely being driven by excess capital. Outside of the financial sector, the consumer still appears to be in good shape, with Procter and Gamble providing constructive commentary.
The airlines are pointing out that travel trends have been supportive, as demand's been solid, and there are increased signs that more customers are paying up to sit in premium cabins. And MasterCard just yesterday made some really good points, that they characterized the consumer spending as being healthy, which was reiterated by Visa as well last night. The labor market's strong, and affluent customers are benefiting from the wealth effect.
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