Markets Hopeful About Russia? - Ahead of Wall Street

Geopolitical concerns have been dominating the headlines lately, distracting investors from the overall favorable picture emerging from Q2 earnings season. Early sentiment today is pointing towards a positive open, building on the favorable momentum from Friday, on hopes of easing tensions with Russia. But nothing concrete has taken place yet and stocks remain vulnerable to negative headlines from Ukraine.

The stand-off over Ukraine represents the bigger geopolitical risk to global markets given the potential impact that any escalation could have on Europe's economic outlook. The region's economic recovery has become a lot more fragile lately, with Italy back in a recession, France essentially stagnant and even Germany losing momentum. The export-centric German economy appears particularly vulnerable to the sanctions war with Russia since roughly 30% of the European Union exports to Russia coming from the country. That's why German stocks have been hit the hardest of all major regional markets in the ongoing turmoil.

On the earnings front, we are steadily moving towards the finish line in the Q2 earnings season, with results mostly from retailers awaited at this stage. The updated Q2 scorecard, including this morning's Priceline PCLN release, that we now have results from 454 S&P 500 members that combined  account for 92.8% of the index's total market capitalization. Total earnings for these companies are up +8.8% from the same period last year on +4.6% higher revenues, with 66% beating EPS estimates and 61.2% coming out with positive revenue surprises.

As we have been stating repeatedly here since the start of this reporting cycle, this is the best performance that we have seen in more than year. This is having an effect on estimates for the current period as well, which aren't coming down as much as would be the case in other recent reporting cycles.

Sheraz Mian
Director of Research