Barclays on earnings season so far: Not impressive, but not a disaster either

The Q2 earnings season failed to impress thus far but hasn’t turned into a disaster either, Barclays strategists said in a Friday note.

“While numbers are broadly okay to us, and y/y EPS growth is positive again, results have failed to lift market sentiment, with Europe looking softer than the US,” strategists wrote.

Barclays notes that the bar was set higher for the second quarter, which “raised the risk of travel & arrive.”

In Europe, earnings per share (EPS) beats have declined, with companies adopting a more cautious tone on the economy, and Barclays analysts turning more negative in their earnings outlook.

This quarter, share price reactions for reporting stocks in Europe have been the most negative in recent years, with severe punishments for misses, especially among Cyclicals.

“However, it feels to us this was more due to positioning than a dramatic worsening of the outlook, so potentially excessive in some cases,” strategists pointed out.

Also, while Europe’s price action has become more risk-off, the US market shows a risk-on rotation, with small caps up for the week.

With indices nearing oversold levels, resilient US data, a Fed put in play, and major mega-cap names yet to report, equities “may try to find a floor as dip buyers step in.” Still, the investment bank has been cautioning that markets face a more complex technical, macro, and political landscape in H2.

The Q2 EPS growth is tracking 2% in Europe and 5% in the US year-over-year, with both regions in positive territory for the first time since Q3 2022. But although EPS beats and margins have declined in Europe, they have shown improvement in the US, Barclays said.