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Advisory Intelligence: The Talking Points from Earnings Season .

Outlining themes from earnings season amid slowing global growth and trade concerns.

Advisory Intelligence: The Talking Points from Earnings Season

Earnings Season

Massud Ghaussy, senior analyst at Nasdaq IR Intelligence, highlights the macroeconomic themes impacting US companies and explains how IROs can overcome the risks

“Slowing economic growth in China and the EU coupled with tariffs and trade tensions; resilience in the U.S. economy; and global central banks leaning dovish are the main macroeconomic drivers,” says Massud Ghaussy, senior analyst at Nasdaq IR Intelligence, addressing the dominant themes of Q4 earnings calls.

Across numerous surveys, “North American and European businesses and investors are seeing higher risks of a global downturn on the heels of trade tensions and slowing growth, especially in China,” he states.

China’s role in the global economy and uncertainty around trade has been a major point of discussion on earnings calls. The Wall Street Journal has even cited transcripts of executives mentioning the country 225 times during investor meetings and calls for S&P 500 companies through the first full week of February.

“The WSJ notes that’s the most over the same period in at least a decade that China has been mentioned,” says Ghaussy, suggesting that it epitomizes the country’s position in the world’s economy when health warnings from companies are stemming from its sluggish growth. “Q4 results indicate a broadly slowing growth in China but not yet alarming, especially impacting exporters and retailers leveraged to the Chinese economy. Rising input costs due to higher energy prices and tariffs are impacting margins negatively.”

These factors, he says, poses risks particularly to technology firms in the communications and e-commerce sectors; industrial and materials sectors are bearing the brunt of the global slowdown, too, he notes. Even firms that are not exposed to the Asian powerhouse, such as Mastercard, are feeling the pinch because of slowing growth in China.

But Ghaussy notes the YTD rally in U.S. equity markets: “Trump’s administration has been aggressively working with China in order to address some of the problems it sees around trade since applying tariffs.’ The markets are pricing in a lot of optimism with the easing of tensions between China and the U.S., he adds: "Both sides are currently highly incentivized to strike a deal, as the administration seems to be sensitive to market performance and the Chinese government to the health of its economy.”

Looking ahead, the outlook for IR teams and management hinges on such a deal being successful. ‘All investors’ eyes are on the trade deal and they are looking at some time between March and April for that to be solidified,’ Ghaussy adds.

Providing further insight into the themes coming out of the Q4 earnings season, he says: “The markets have been extremely sensitive to the trade deal and also policy comments from the Federal Reserve and other central banks which have mentioned the slowing of global growth.”

Other themes from earnings calls Ghaussy highlights include:

  • Fourth quarter results are generally good but guidance is coming in weak
  • Potential earnings recession going into 2019, and estimates drifting lower
  • Dollar has been strong since it surged in early 2017, adding pressure to global U.S. firms.

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