Weekly Analyst Update — February 21

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Focus: Drivers of the earnings surprise

With valuations under pressure from higher interest rates, our bullish earnings outlook is absolutely key to markets. Company earnings are still delivering, despite high cost pressures. We see profit margins staying near record levels, and driving a further earnings growth surprise. Cost pressures are now easing. Strong GDP growth is more important. Tech sector is driving a new margin reality. Whilst the ‘reopeners’ margin rebound has further to go.

Geopolitical volatility stalks markets

Geopolitics drove global market volatility, despite strong US retail sales and no more hawkish Fed surprises. USD, gold, and bond safe havens did well. Q4 earnings strength was overshadowed by high-profile RBLX, PLTR, SHOP misses. Global PMI data and US inflation in focus this week. We are positive markets. See latest presentation, video updates, and twitter @laidler_ben.

The brave new investing world

We are in a different investing world, of lower growth, higher rates, and more volatility. We are positive, but different assets will lead markets. Its no longer just about US and tech.

Main Street versus Wall Street stand-off

Main St’ is worried on labour pressure but are bullish growth. ‘Wall Street’ on interest rates and recession risk. Both focused on inflation, helping commodities (DJP) and value (IWD).

Insights from burger-nomics

The Big Mac index is a useful short-hand for FX valuation. It shows USD expensive and RUB very cheap. Higher burger prices show wide rising price pressures from UK to Turkey.

Reopener rally versus the ‘WFH’ selloff

Re-opener stocks (BA to MAR) index rebounding on earnings and easing lockdowns. But Work-from-home (NFLX to PTON) index suffering from high valuations and expectations.

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Crypto assets not immune to equity volatility

Crypto pulled back on raised equity volatility, with BTC falling below $40,000. Colorado to be first US state to allow bitcoin tax payments, as use cases broaden. Metaverse leader RBLX sells off after disappointing earnings. HBAR and AVAX coins added to the eToro platform.

Energy in commodity rally spotlight

Brent crude prices fell back with cross-currents from Russia-Ukraine tension and US-Iran nuclear talks progress. Out-of-favour gold prices are near a 7-month high on rebounding safer-haven demand. Commodities remain in a rare ‘sweet spot’, up 30% in the last 12-months.

The week ahead: Russia remains in focus

1) President’s Day US holiday (Mon). 2) Global PMI growth and price data, and Fed’ favourite US PCE inflation seen at 5.9%. 3) Overseas earnings focus includes banks HSBC, BCS, RY, CM, miners RIO, VALE, plus BABA, BKNG. 4) US-Russia to hold talks seeking a Ukraine stand-down.

Our key views: Earnings to offset valuations

We see a positive 2022, but with lower returns and higher volatility than last year. Economic growth is strong and earnings forecasts too low. Valuations are the risk as interest rates rise from still very low levels. We focus on cheaper and cyclical assets that have strong growth and offer defence to valuation risks: like Value and overseas equities, and commodities.

Written by a team of experienced financial analysts at eToro.

This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.