European stocks edge higher on robust earnings, recovery hopes

Sentiment remains positive on hopes of quick economic rebound

Photograph: iStock

Photograph: iStock

 

European equities rose on Monday, as investors weighed robust earnings reports and a brightening economic outlook against the risks of rising inflation and higher taxes.

The UK market is closed for a public holiday. The Stoxx Europe 600 Index climbed 0.6 per cent as of 4.10pm CET, moving closer to historic highs reached last month. Carmakers led advances, despite continuing warnings about production disruptions due to a shortage of chips.

Ferrari NV gained 2.2 per cent amid upbeat estimates for its earnings report due Tuesday, while Porsche Automobil Holding rose 1.6 per cent.

Renewables underperformed after Citigroup said in a note that Siemens Gamesa Renewable Energy’s 2021 guidance was disappointing. Vestas Wind Systems dropped by 4.3 per cent.

The Stoxx 600 Index has climbed more than 10 per cent this year, buoyed by expectations of rapid economic recovery, as vaccinations against the coronavirus progress while fiscal and monetary policy across the region remains loose.

With much of the positive news already priced into lofty valuations, momentum has stalled in the past weeks, even as European companies are delivering one of the best earnings seasons on record.

“The ‘laissez-faire attitude of central bankers will not prevent long rates from rising,” Oddo strategist Sylvain Goyon wrote in a note on Monday. “This situation, current and past, is favorable to a reduction in the dispersion of expectations and therefore of a return of the preference for value.”

Wall Street’s main indexes rose on Monday after a week of largely upbeat earnings strengthened expectations of sustained profit growth for companies, while some high-flying growth stocks lagged a broader rally.

With more than half of S&P 500 companies having already reported results so far, profits are seen rising 46 per cent in the first quarter, compared with forecasts of 24 per cent growth at the start of April, according to IBES data from Refinitiv.

Nine of the 11 major S&P 500 sectors climbed in early trading, with economy-sensitive cyclical stocks, including financials, energy, industrials, and materials, leading the gains.

“Earnings so far have been substantially better than projections. People and institutions are feeling positive about the market right now even though we’re close to all-time highs,” said Mark Grant, chief global market strategist at B. Riley FBR in Fort Lauderdale, Florida.

The Nasdaq index lagged on the day. Megacap technology stocks, including Apple, Amazon.com, Alphabet, and Microsoft, traded mixed despite posting largely upbeat results last week.

The stocks have struggled to maintain the upward trajectory they had coming into reporting season.

“The catalysts are strong for a sell-in-May strategy with the hot start to 2021,” said Jeff Carbone, managing partner for Cornerstone Wealth. “It may be time to take some profits from the strong growth sectors that have had big runs in 2021.”

Improving economic data, strong earnings, fiscal stimulus and the Federal Reserve’s ultra accommodative stance have supported markets, pushing the S&P 500 and the Nasdaq indexes to record levels last week.

Data on Monday showed U.S. manufacturing activity grew at a slower pace in April, likely constrained by shortages of inputs amid pent-up demand due to rising vaccinations and massive fiscal stimulus.

At 10.07am ET the Dow Jones Industrial Average was up 287.89 points, or 0.85 per cent, at 34,162.74, the S&P 500 was up 25.03 points, or 0.60 per cent, at 4,206.20 and the Nasdaq Composite was up 53.48 points, or 0.38 per cent, at 14,016.16.

Tesla fell 1.2 per cent. Industry sources told Reuters the electric-vehicle maker, under scrutiny in China over safety and customer service complaints, is boosting its engagement with mainland regulators and beefing up its government relations team.

Moderna Inc gained 3.4 per cent after the drugmaker said it will supply 34 million doses of its Covid-19 vaccine this year to the global Covax program.

Estee Lauder Companies slid 5.5 per cent after missing analysts’ estimates for third-quarter sales, hurt by weak demand for the cosmetics maker’s premium makeup products as people continued working from home.

Advancing issues outnumbered decliners by a 2.79-to-1 ratio on the NYSE and by a 1.51-to-1 ratio on the Nasdaq.

The S&P index recorded 61 new 52-week highs and no new low, while the Nasdaq recorded 77 new highs and 26 new lows. – Reuters, Bloomberg