European earnings resilience limits stocks downside - Barclays

Investing.com - April was a difficult month for European stock indices, but Barclays noted that overall earnings resilience has likely limited the downside for equities.

European equities largely pulled back last month, with the German DAX and the French CAC 40 indices dropping more than 2% and the broad-based Stoxx 600 index falling more than 1%.

That said, although equities have pulled back, newsflow has improved a bit, noted Barclays. “If it continues to hold, that would mean the current correction may not need to extend further.”

Nearly two-thirds through the reporting season, EPS growth on a year-on-year basis is tracking better than expected, the bank said, adding that earnings beats have improved further since it reported last week, and are considerably higher when compared with the fourth quarter.

“Margins are resilient and [are] making up for relatively softer top line beats. Price action has been subdued compared to Q4 given high macro volatility, and while dispersion between beats and misses is very high, overall earnings resilience has likely limited the downside for equities,” Barclays said.

At the sector level, the tone has improved the most for Tech, Utilities, Healthcare and Materials. On the other hand, newsflow in Communication Services, Industrials and Energy has deteriorated.