Here We Go Again, Again

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What's going on?

European companies are about to report fourth-quarter earnings bruised yet again by the pandemic, and – wait, we’ve definitely been here before.

What does this mean?

Analysts are forecasting a 26% average drop in European companies’ earnings last quarter compared to the same period the year before. That’s a similar fall to the one investors saw in the third quarter, but look on the bright side: it’s not the 50% profit collapse that Europe’s firms suffered in the second quarter of 2020.

Much like in the States, energy companies are expected to see the biggest drop in earnings. But three sectors which could actually be set to do well are metals and mining companies (i.e. “materials”), real estate companies (home prices, after all, are soaring), and utility firms, which tend to make money no matter which way the economy’s heading.

Why should I care?

For markets: The future is now.

It’s worth noting that analysts think European companies will start posting higher profits this quarter. And while investors won’t know for sure until those firms’ next earnings updates in a few months’ time, they’ve already pushed the stock market higher in anticipation that those analysts are right. Of course, that does raise the distinct possibility that stocks don’t have much higher to climb from here on out…

The bigger picture: Stop the steal. 

While the US stock market outperformed the global stock market by 11% in 2020, it’s the other way round so far this year. That might come as vindication to investment bank Citigroup, which reckons there’s more money to be made outside the States in 2021 than inside the country this year: it’s advising clients to avoid America altogether and buy cheap-looking UK and emerging markets stocks instead.

Originally posted as part of the Finimize daily email.

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