October 15th, 2020:
Some interesting observations/charts that caught our eye this afternoon…
1) European Luxury – Some striking charts/dislocations…
As the European luxury goods sector makes new highs in both relative performance and valuation terms vs the wider market, here are some interesting charts/dislocations that we thought worth highlighting…
European Luxury Goods’ relative PE has hit a 7 year high…
European Luxury Goods’ relative performance has continued to make new highs despite the fall in Chinese consumer confidence…
European Luxury’s price outperformance is occuring against a backdrop of sharply deteriorating relative EPS trends…
Luxury has been widely regarded as ‘Europe’s FAAMNG’ in recent years so it’s resilience in recent months is not entirely surprising, but given the above, can it continue?
2) Some performance vs EPS revisions dislocations as we head into Q3 earnings season…
As we head into Q3 earnings season in Europe, we’ve compared how consensus EPS revisions trends are looking versus performance trends for individual sectors, and the wider market. Some that particularly stood out to us include…
i) Banks
While Eurozone banks’ profitability trends still remain very depressed versus history, it is interesting that their relative FY1 EPS trends have been rising over the last 3 months, decoupling from their relative performance trends which are still close to historical lows.
Eurozone banks’ relative EPS trends have been rising over the last 3m, decoupling from their relative price performance trends which remain close to historical lows…
ii) Insurance
European Insurance is the seeing the biggest disconnect between it’s relative price performance and relative EPS trends in a decade. Either it’s price underperformance has gone too far and the sector is due a catch up, or earnings are about to collapse sharply!
Our sector analysts remain cautious on a longer term view.
European Insurance’s relative performance and relative EPS trends are seeing the biggest disconnect in a decade…
iii) Materials
We’ve had a lot of questions recently on whether it is too late to buy Materials given it’s strong outperformance. See chart below…
Materials’ continued price outperformance is fully justified by it’s superior relative EPS trends (which are near 6-7 year highs)
Finally, while we’re at it, here’s what the price vs EPS chart now looks like for European vs US equities. While SXXP vs SPX’s relative EPS is still weak, it is no longer falling…
European vs US equities’ relative EPS remains weak (in line with the region’s continued underperformance) but it is no longer falling…
Banks have already priced