Sentiment is bearish enough to be bullish

Equity markets continued to recover on Monday as the improving mood at the end of last week carried into the start of this week.

 

We mentioned in our week ahead blog two-euro area sentiment indicators would be released this week; the first was released on Monday. Sentix are a behavioral finance research house, and reported that unsurprisingly investor sentiment had fallen once again in the region.

 

 It is definitely worth noting that on the two previous occasions in the past two years when Sentix reported investor sentiment in the euro area reached these levels, July 2012 and July 2013, on both occasions the Stoxx fifty index of leading European shares rose over 20% in the coming months.

 

The earnings season starts on Wednesday with Alcoa reporting after the US market closes. As we always point out Alcoa earnings are seen an s benchmark for the upcoming quarter. Alcoa is an aluminum producer and as the metal is in some way part of many large consumer items, its results are considered bell weather on the overall economy. Alcoa will be followed on Thursday by Pepsi and after that the season gets into full swing. The US financial sector as always reports fairly early on in the quarter and likewise will be eagerly awaited.

 

According to Merrill Lynch consensus earnings expectations are for year on year growth of 5% ex financials, slightly ahead of sales growth of 4%. As is always the case, the earnings are important but they are also backward looking, what are more important are the director’s outlook statements for the months ahead.

 

The two regions that will be of particular interest will be those companies who are exposed to China and Europe. Any comments that are made in the press statements or in the post statements analyst meetings regarding the health of those economies will be of particular interest.

 

Posted on October 6, 2014 .