Markets performance makes some sense – Charles Schwab

Economists at Charles Schwab have been able to make some sense of global earnings and stock market performance, re-openings and relative stock market performance across countries and they expect to make sense of the dividend divide fairly soon.

Key quotes

“Although the dollar amount of analysts’ estimates of the next 12 months earnings per share for MSCI World Index companies has been slowly rising over the past month, it’s hard to have a high degree of confidence in the magnitude of earnings, given all the uncertainty. Instead, it is the direction of analysts’ changes which becomes important to the direction of the stock market. A worsening outlook on the pace or sustainability of the global recovery from COVID-19 would likely affect both the outlook for earnings and the stock market.”

“Restaurants in Ireland finally reopened to seated dinners on June 29, accounting for the rise in diners in the chart above. Meanwhile, in Australia, restaurants in the state of Victoria (home to the city of Melbourne) were re-closed on July 1 until July 29, after an outbreak of COVID-19. We will be watching to see if this begins to be reflected in the performance of the Irish and Australian stock markets this month.”

“Stock prices in the major indices have recovered most of their losses so far this year, but dividends have not. On this issue, market and analysts are seeing things very differently. While not expecting a complete recovery for dividends per share next year, the analysts’ consensus forecast for dividends per share in 2021 for these indexes are even higher than the current market forecast. It makes little sense to see such a big gap between the market and analyst estimates for the return of dividends. [...] The European Central Bank’s Single Supervisory Mechanism has said it may provide clarity on its dividend ban in July, which could offer more visibility on the outlook for dividends.”