Our discussion last month about the impact of dollar strength on corporate profits tipped off a broader conversation about how other top-down themes may be impacting the bottom line. Earnings reports, interviews with executives and data on corporate behaviour all provide insights into how boardrooms are responding to prevailing macro trends. While these themes are not the driving principles in our security selection, the challenges the pose and the varying success of corporate strategies to address them are relevant to our investment choices.
- We consider the implications of three macro themes that emerged as common refrains in first quarter earnings reports: oil price fluctuations, weak inflation and patchy global demand.
- Our high-level takeaways from the latest crop of earnings are 1) despite headwinds to revenue growth, companies have found ways to expand margins, and 2) opportunities in European equities may be increasing relative to the US.
- Our broadly positive outlook for the largest developed economies supports our selective overweights in Equities and Corporate Credit. Meanwhile, the big news in rates markets corresponds with our negative outlook for the sector globally.
