Europe's Q3 Profit Outlook Raises an Index Concentration Question
A strong earnings estimate does not guarantee equally strong performance from every STOXX 600 constituent.
Reuters' October 9 preview indicated substantial projected European profit growth with energy and materials playing a disproportionate role. That concentration raises a question for investors using the STOXX 600 as shorthand for the whole European corporate sector. Actual results and revisions may differ from consensus forecasts.
Index earnings growth aggregates profits across companies that face different conditions. High commodity selling prices can lift upstream producers while raising transport and manufacturing costs. Banks, telecom networks and property businesses may have separate financing or competitive pressures.
Examine earnings growth excluding the strongest sector and compare revenue expansion with operating margins. The distinction between a forecast and released company accounts is essential. A strong expected benchmark profit figure should not be described as confirmed growth for the quarter until reporting is complete.
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