Reflecting on the past month, Jeremy Richardson, Senior Portfolio Manager, Global Equities, RBC Global Asset Management (UK) Limited, discusses Q2 earnings, highlighting market resilience, muted reactions to positive news, and shifting regional trends.
Unlike Q1, which was clouded by tariff-related uncertainties, Q2 earnings season reflects stronger fundamentals with less external disruption.
Companies delivering positive results are not seeing the usual share price gains, signalling potential market fatigue despite strong year-to-date performance.
Contrary to earlier expectations of a regional rotation to Europe, the U.S. market has shown a robust recovery, supported by developments like the GENIUS Act legitimizing stablecoins.
The swift turnaround in the U.S. market serves as a reminder of the risks of over-relying on market consensus and the importance of staying adaptable.
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Transcription
Hello, this is Jeremy Richardson from the RBC Global Equity team, here with another update.
Speaking to you whilst we're going through the Q2 earnings season, which, so far at least, appears to be progressing reasonably well. The first quarter earnings season, as you may remember, was coloured with all sorts of uncertainty to do with the tariff announcements, and so investors were minded to give companies a bit of a free pass, focusing in particular on any forward looking statements.
This quarter at least, it feels as though the fundamentals are actually counting for something, and there's much less tariff uncertainty. So it's almost as though we're back to what we might call, inverted commas, back to normal.
However, there are some signs of tension beneath the market. One of the things that is of particular concern at the moment, is that companies with positive news don't appear to be getting the same positive share price reaction that we're normally accustomed to seeing. And that is just worth bearing in mind because obviously markets have developed very, very strongly; we're up year to date, despite all of the policy uncertainty that we have seen. And so, the fact that actually positive fundamentals are not leading to very strong positive share price performance, it may indicate, for example, that perhaps there are some signs of ageing going on within the market.
One of the things that hasn't really aged particularly well, is the rotation that we thought we were beginning to see in the end of Q1, and you may remember that actually there were some, signs that maybe if the U.S. was going to be seeing weaker economic development - driven by this tariff uncertainty - that they were a catalyst for a rotation into other regions of the world, particularly Europe, where there are some more positive signs of change.
Particularly, government spending to fund rearmament, coupled with declining interest rates. Well, that also doesn't appear to have continued, that rotation has petered out, and if anything, we've seen a very strong recovery out of the U.S., conflicting with that consensus that was sort of emerging at the end of Q1.
Now consensus’ are there to be sort of tested every now and again, but it is somewhat remarkable is it not just how quickly and how assuredly the U.S. has, appeared to have recovered. Just look at what we've seen recently with the passing of the Genius act; legitimizing stablecoins, giving them a regulatory environment, and contrast the pace of that regulatory introduction compared with, the slow pace of change that we're seeing in other geographies.
A reminder perhaps, not to count out the U.S., and a reminder as well, about the danger of believing in market consensus.
I hope that's been of interest, and I look forward to catching up with you again soon.