That time of the quarter again…

‘We are each but a quarter note in a grand symphony’ – Guy Laliberte

It is that time of the quarter again…the start of the corporate earnings season flood is almost upon us.  The investment headlines may be full of talk about the potential for trade wars and higher interest rates but just as important as all these headline grabbing insights are the quieter ones derived from the corporate earnings disclosures…profits, losses, cashflows, dividends, outlook hopes and the like.

So what are the key trends and themes to look out for? Well it depends where you are looking.  In the United States it is all what companies are doing with the corporate tax cuts pushed through by the Trump administration.  There are four broad ways a company could ‘spend’ this benefit: return it to shareholders via share buybacks or special dividends, invest it back into its own business including undertaking merger activity, pay down any debts or give it back to their workers via higher wages or a pay bonus. So far more firms are still deciding to return cash to shareholders than any other option.  How – in the context of all the current excitements with the US administration’s trade policy and rising interest rates from the Federal Reserve – this evolves will be the critical insight from the US corporate season.

By contrast in the UK and Continental Europe the corporate story is all about confidence levels.  There is plenty of uncertainty elements swirling around Europe at the moment with Brexit, the interplay between German and French political/economic efforts and an inconclusive recent Italian General Election.  All of this potentially impacts consumer confidence and hence general spending levels and, in turn, corporate earnings and the value placed on them.  As we have observed in these thoughts regularly over the last few months the most undervalued area are UK domestic equities although the lack of faith in the potential for European economic reform and change is also apparent.

Many questions…and over the next six weeks hopefully many answers. Chief Investment Officer Dynamic Opportunities UCITS Fund