They say that when America sneezes, the world catches a cold. Reality is never that simple, but the signals from U.S. earnings season are mixed and the sheer scale and diversity of companies listed in the U.S. means that the fate of the country's companies is important for the world economy.
Earnings have been better than most analysts predicted. At the time of writing, around 75% of companies have announced profits that have beaten analysts' expectations, according to Institutional Brokers' Estimate System data from Refinitiv. The same report shows that, on average, they did so by 6%. While this is an impressive figure relative to long-term trends, it demonstrates how low expectations were to start with.
Those low expectations were driven partly by companies themselves. In the immediate run-up to this earnings season, the number of profit warnings was more than twice as high as the number of positive or "in-line" pre-announcements. What we have seen so far on Wall Street is simply another round of "beat the lowered estimate."
The Devil Is in the Details
Nonetheless, scrutinizing the company results themselves does reveal some interesting themes about the state of the U.S. and world economy. The results of Coca-Cola, Starbucks and McDonald's show that the U.S. consumer is still bearing up in spite of worries about the state of the world's largest economy.
In spite of global trade tensions and the yellow-vest demonstrations in France, Hermes reported strong figures, with sales growing at their fastest rate for five years. U.K. luxury fashion brand Burberry reported solid numbers boosted by the weakness of the pound. Both sets of results suggest that consumers of luxury goods in China have not been put off by their country's trade spat with the U.S.
