‘Q3 results show no margin for error’ – Barclays

Barclays strategists highlighted the fact that investor reactions to the third quarter earnings season have been “negative” so far.

This suggests that there is little room for error for both U.S. and European companies in the current market environment.

“Earnings are still growing, but the reset of expectations has started,” the analysts wrote in a note.

The strategists also highlighted the soft sales growth in Europe. Transcripts and corporate guidance indicate greater caution and a downbeat sentiment regarding the economy.

As the Q3 earnings season approaches its midpoint, European EPS has declined by 4%. However, they still stand 2 points above analysts’ estimates.

In the U.S., EPS has increased by 11%, surpassing consensus estimates by 8 points. While EPS beats are above average, cyclicals are beating by a smaller margin compared to the rest of the market.

The price reaction to earnings reports is skewed toward the negative, and there is an increase in dispersion, especially for segments of the market that are heavily crowded, such as Big Tech.

“Unsurprisingly, EPS momentum is starting to roll over but the recent sharp moves in the market does indicate that investors have quickly priced in potential downgrades down the road,” the analysts concluded.