Investor sentiment shows more signs of fatigue than euphoria...
Equity markets have greeted positive earnings reports largely with indifference. Investor sentiment shows more signs of fatigue than euphoria, even as stock markets have repeatedly reached new highs this year. Yet we see solid fundamentals and returns in the second half, with the latter largely tracking earnings growth.Investors may be on to something: it will be more difficult for companies to achieve the same EPS growth in the second half, as the earnings recovery in the second half of 2016 is a higher hurdle. The energy sector’s strong contribution to earnings is waning, after its earnings rebound has delivered nearly a quarter of the EPS growth in the U.S. market and half of that in Europe in the second quarter. A stronger euro could slow the pace of earnings growth among European companies. The earnings revisions ratio – the ratio of earnings estimate upgrades to downgrades – in Europe has in fact fallen to a one-year low.
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Tensions between the U.S. and North Korea flared up. Global stocks fell. Perceived safe havens such as the yen, the Swiss franc, gold and government bonds rallied. VIX futures trading volume hit a record high.
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U.S. inflation showed signs of stabilization despite missing estimates, against the backdrop of a buoyant labor market. China’s consumer prices undershot expectations, but factory inflation held steady.
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The National Federation of Independent Business (NFIB) said small business sentiment rose for the first time since January, and lack of quality workers is a common concern. The U.S. Job Openings and Labor Turnover Survey (JOLTS) reported a record level of job openings in June.
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