European stocks edged lower as the weakest corporate earnings season since 2020 outweighed optimism that interest rates were potentially peaking. Heineken NV slumped after the brewer cut earnings forecast as its price increases drove consumers away from its brands.
The Stoxx 600 was 0.1% at 8:09 a.m. in London. The food and beverage subindex was the biggest faller due to Heineken, while energy and healthcare stocks outperformed.
Europe’s benchmark index is on track to post its third monthly gain in four as investors bet that central banks were close to pausing rate hikes. However, stocks are now entering a period of typically poor seasonal returns, with sentiment further dampened by poor economic data as well as weak earnings.
Companies are on track to beat profit estimates by the lowest share since 2020, according to data compiled by Bloomberg Intelligence. Moreover, August and September are usually the worst time for European stocks, based on the average performance of the Stoxx 600 over the past 25 years. The benchmark has a history of sliding by about 3% over this period.
“The optical richness of stocks does seem to suggest it will be increasingly hard for the market to rally on pure optimism,” said James Athey, investment director at Abrdn. “Obviously, a genuine pick up in earnings would be a more solid foundation on which to base a rally.”
“Near-term upside therefore looks likely to come from names who manage to beat earnings forecasts without having to dampen expectations via cautious guidance and provided that the macro data continue to allow the soft-landing dream to live on,” Athey said.
SECTORS IN FOCUS:
- Sectors exposed to China, such as autos and miners, after the Asian country’s top economic planning agency released a wide-ranging policy document Monday containing some recently announced consumption-related initiatives.
For more on equity markets:
- Sanguine Equity Markets Enter High-Risk Season: Taking Stock
- M&A Watch Europe: Glencore, Frasers, Tofas, Dr Martens, BAT
- US Stock Futures Little Changed
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--With assistance from Michael Msika.
