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2Q17 Earnings Primer Investor Sentiment Survey July 14, 2017 CORBINADVISORS.COM
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Inside The Buy-side® 2Q17 Earnings Primer
Issue Date: July 14, 2017
For over a decade, we have surveyed global investors and analysts on the equity markets, world economies and business climate. We share our research broadly with corporate executives, investor relations (IR) professionals and the financial community. Survey scope: 71 investors and analysts globally, comprising 58% buy side; assets under management total $770 billion
Generalist Industrial Multi Tech
Cons. Stap.
3%
Other
N. America
9%
3.3%
8.4%
NASDAQ
3.9%
14.3%
S&P 500
2.6%
8.3%
Russell 2000
2.1%
4.3%
As of 7’7’17
By Style
62%
Europe
30%
30%
GARP
24%
Core Growth
19%
Hedge Fund
5% 3%
DJIA
Core Value
11%
Energy
YTD1
By Region 61%
8%
2Q17
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Survey timeframe: June 19 – July 7, 2017
By Sector
Market Performance
Asia Pacific
Latin America
7%
1%
CORBIN ADVISORS
Deep Value
16% 5%
Growth
3%
Other
3%
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Word Cloud: Frequency Of Occurrence
CORBIN ADVISORS
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Key Findings: Expectations For Earnings Growth Remain Strong; Economic Momentum Real And Driving Sentiment #1
Sentiment Reveals Elevated Management Tone and High Expectations For Earnings Growth; Europe Trends Upward Following Last Quarter’s Momentum As Investors Seemingly Blow Off Brexit
More than 60% expect EPS to improve this quarter, marking an all-time high (tracking this measure since 1Q12)
80% describe management tone as Cautiously Optimistic or Bullish, the most upbeat it’s been in nearly three years
Nearly 75% expect the European economy to improve over the next six months, while only 25% report being Concerned or Very Concerned about Brexit
Investors not blinking yet with those considering equities overvalued falling to 47% from 67% last quarter; net buyers consistent while those holding or rotating slightly increase
#2
Feedback Indicates a Sustained Growth Trajectory but Potential Black Swans Loom on the Horizon
55% report being Concerned or Very Concerned about political instability, with 51% of that group noting it is impacting their investment decisions; 94% expect geopolitical volatility to Stay the Same or Worsen over the next six months
All significant public policy reforms are viewed as less likely to pass in 2017 than they were in the prior quarter
86% expect the Fed to raise interest rates again in 2017, the impact of which will continue to slowly let air out of the balloon
#3
Technology Cannot Be Stopped As Its Exponential Impact on Society Continues to Amplify While Bearish Sentiment on REITs Ebbs After Four Consecutive Quarters of Increasing Negativity
Technology receives the most bullish sentiment (again), while Biotechnology continues to catalyze upbeat sentiment, which has more than doubled since Dec. 2016
Following persistent, negative generalist investor perception toward REITs, sentiment reveals more bulls and fewer bears than last quarter
#4
Hopes for a U.S. Corporate Tax Cut Have Begun to Fade Despite 92% Indicating Reducing Uncle Sam’s Take Would Be Positive for the Economy
Likelihood of passage has plunged to 59% this quarter from 87% last quarter
37% confirm that D.C. dysfunction is impacting their investment decisions CORBIN ADVISORS
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2Q Earnings Performance Expected To Improve Sequentially; Sell Side Expectations Are Catching Up Expectations Regarding 2Q17 Earnings Performance Relative To Consensus
“Stable” Growth
Jun '16 Macro Top-line Growth
Sep '16 Dec '16
44%
Mar '17 Jun '17
47%
31%
35%
36%
50%
40%
49% 39%
38%
Sector Specific: Energy and Retail 22%
21%
15%
Better Than
In Line
18%
15%
Worse Than
85%
63%
Expect In Line to Better Than consensus results
Expect sequential improvement
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Heightened Expectations For EPS And Cash Flow Momentum; Organic Growth Recedes Slightly From All-time High Last Survey Organic Growth
EPS Growth
62% 45%
57%59%
46%
46% 42%
31%
63%
45%
41%
33%
27%
23%
31%30% 28%
22% 15%
13%11%13%
Improving
Staying the Same
Worsening
Improving
Cash Flow 55%
50%
43%
7%
Worsening
Operating Margins
56% 37%
31%
37%
46%45% 38%
32%
31% 20%
Improving
Staying the Same
10%
Staying the Same
32%35%
50% 36%
32% 23%
14% 13% 12%
Improving
Worsening
Sep '16
Dec '16
Mar '17
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Staying the Same
17%
15%
Worsening
Jun '17
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Commentary On Earnings Expectations Vs. Consensus
Better Than
In Line
Worse Than
“Stable to modest economic growth and capital expenditures, continued consumer spending and sustainable margins.” Buy
“Simultaneous economic growth on a global basis.” Buy Side, Generalist, N.A.
“I am an Energy analyst; commodities will continue to dominate my landscape. Hedging will preserve the status quo in 2Q17 but we may get hints of softening toward 4Q17 if pricing does not improve.”
Side, Generalist, N.A.
“Slowing signals.” Buy Side, Generalist, N.A.
“Macro and bottom-up data points remain supportive.” Buy Side, Generalist, N.A.
“A lot is baked in already and there is some earnings pressure offsetting continuing expected gains.” Buy Side, Generalist, N.A.
“Top-line growth and consistent margins. Energy sector is an easy comp.” Buy Side, Generalist, N.A.
“My stocks are largely Tech and Discretionary Retail – 2Q isn't a great quarter for either.” Buy Side, Generalist, N.A.
“GDP upward revision and oil price decline.” Buy Side, Generalist, Europe
“Reinvestment risk.” Sell Side, REIT, N.A.
“Business slowed down at the end of 2016 and early 2017 waiting to see which new rules would be put in place to reduce regulatory and tax burdens. Now that nothing is clearly getting done, businesses have to make up for lost time.” Sell Side,
“A sense that overall business mood is muted.” Sell Side, Generalist, Europe
Industrials, N.A.
Europe
Sell Side, Energy, N.A.
“Interest rates, fiscal policy and trade policy.” Sell Side, Generalist, N.A. “Falling commodity prices.” Buy Side, Generalist, N.A.
“Economic data and sentiment appear to have taken a breather.” Sell Side, Financials, N.A.
“No major shocks to the system over the three reporting months other than FX fluctuations.” Sell Side, Consumer Staples,
“Earnings downside by sector not matched to earnings upside forecasts, particularly for resources. Retail looks particularly challenging for earnings growth.” Sell Side, Multi, Asia Pacific
“Momentum in the economy is still positive.” Sell Side, Tech, Europe
“Improving consumer confidence.” Sell Side, Multi, Asia
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Perceived Executive Tone Registers Highest Positivity Level In Nearly Three Years‌The Real Deal
Investor Sentiment
17%
15%
Management Tone 55%
14%
15%
80%
Bullish 31%
40%
Neutral to Bullish Neutral
55% 65%
Neutral to Bearish 25%
21%
Bearish 23%
23% 4% Mar '17
21%
16% 7% 1% Mar '17
3% Jun '17
CORBIN ADVISORS
4% Jun '17
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Commentary On Sentiment Drivers Bullish
Neutral to Bullish
“Low interest rates, reasonable valuations, growing fundamentals and no signs of a macro reversal.” Buy Side,
“Overly optimistic expectations for pro-business governance changes offset by nowhere else to invest to get a return.” Buy
Generalist, N.A.
Side, Generalist, N.A.
“Earnings less regulations.” Buy Side, Generalist, N.A.
“Stronger revenues.” Buy Side, Generalist, N.A.
“Management guidance.” Buy Side, Generalist, N.A.
“Oil price declining in Energy sector.” Buy Side, Generalist, Europe
“Equities are still largely under-owned by institutions and individuals.” Buy Side, Generalist, N.A.
“Growth gaining momentum in Continental Europe.” Buy Side, Multi, Europe
“Global demand, media and peer negativity.” Buy Side,
“Global growth is improving; Macron may succeed in doing good reforms in France.” Sell Side, Generalist, N.A.
Generalist, Europe
“The end of war in North Africa and the end of populism against Europe.” Sell Side, Generalist, Europe “Strength of banking sector.” Sell Side, Multi, Asia
“Sustained economic growth in Europe.” Sell Side, Generalist, Europe
Neutral to Bearish
Neutral
“Valuations vs. low growth.” Sell Side, Generalist, N.A.
“While macro and bottom-up data points are supportive of improving fundamentals, I worry about potential air pockets in growth in 2H17, especially as commodities have pulled back and management teams await policy before making significant capital investment decisions.” Buy Side, Generalist, N.A.
“Caution regarding valuations and the economy potentially disappointing.” Sell Side, REIT, N.A.
Side, Generalist, N.A.
“Revenue growth subdued and margins weakening.” Sell Side,
“Trump's plans are stalling in Congress and the market is too bullish on its success.” Sell Side, Tech, Europe
“Rising rate regime and slowing economic signals.” Buy Side, Generalist, N.A.
Multi, Australia
“Not enough growth in the economy to sustain valuations.” Sell
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Europe Optimism Continues To Grow Amid Signs Of Continued Economic Strength Global Economic Expectations Over The Next Six Months
Eurozone
73%
23%
4%
+10 pts
-5 pts
India
52%
40%
8%
- 6 pts
0 pts
Southeast Asia
45%
45%
10%
-9 pts
-4 pts
U.S.
43%
40%
17%
-13 pts
Brazil
+8 pts
35%
34%
31%
-16 pts
China
+8 pts
33%
43%
24%
+1 pt
Mexico
-1 pt
32%
50%
18%
+14 pts
LatAm (ex-Brazil)
-39 pts
32%
44%
24%
-4 pts
Japan
+4 pts
31%
58%
-1 pt
11% +3 pts
Improving
Staying The Same CORBIN ADVISORS
Worsening 10
Fewer Classify Valuations As Overvalued Given Real Economic Momentum And Bets On Outsized EPS Beats QoQ Investment Trends
U.S. Equity Valuation Classification
Dec '16 10%
42% 36%
54%
37% 30% 26% 25%
Mar '17 3%
30%
32%
24%
23%
67% 11%
Jun '17 8%
29%
45%
7%
6%
47%
0%
Net Buyer Under
8%
Fairly
Over
40% Expect Valuations To Remain Flat In 2017
Net Seller Dec '16
Holding Mar '17
Rotating
0%
Liquidating
Jun '17
Investors Remain Committed To Equities; Net Buyers Consistent While Those Holding Or Rotating Slightly Increase
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Low Interest Rates Driving Sustained U.S. Bull Market But At Least One More 25 BPS Bump Likely In 2017
Believe The Fed Will Continue To Raise Interest Rates in 2017
Year-end Fed Funds Rate Predictions 53% “They will raise but at a slower rate. One more at most and less-than-expected in 2018.” Buy Side, Generalist, N.A.
29% 12%
1.25%
1.50%
1.75%
6% ≥ 2.0%
Current CORBIN ADVISORS
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Heightened Expectations For Strong Earnings Results, While Potential Black Swans Loom
Top Concerns Top Market Drivers
1 2 Low interest rates 3 Tax reform
Investor optimism, expectations for strong earnings/economic growth
CORBIN ADVISORS
1 Political dysfunction in D.C. 2 Geopolitical volatility 3 Valuations
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Commentary On Top Concerns
Out of N. America
Out of Europe
“1) Political uncertainty in U.S.; 2) Low productivity and lack of inflation; 3) Fiscal state of U.S. government and municipalities.” Buy
“1) Brexit; 2) China; 3) Gulf.” Buy Side, Generalist “1)
Side, Generalist
Rates; 2) Central banks; 3) Valuations of U.S. market.” Buy
Side, Multi
“1) Commodity prices (and impact on capex); 2) U.S. policy inaction; 3) Global political volatility.” Buy Side, Generalist “1) Geopolitical uncertainties; 2) Political issues in U.S.; 3) Central Bank policy errors.” Buy Side, Generalist “1) Government dysfunction; 2) Government deficit; 3) Taxes.” Buy
“1) U.S. corporate tax rate reduction; 2) Infrastructure expansion program; 3) U.S. personal tax rate reduction.” Sell Side, Generalist
“1) U.S. administration; 2) Geopolitical tensions; 3) Peaking consumer confidence and PMIs.” Sell Side, Industrials
Side, Generalist
“1) D.C. dysfunction prevents legislation; 2) Market infrastructure – ETFs/indexes, algorithmic trading, crowded hedge fund trades; 3) Terrorism, cybersecurity.” Buy Side, Generalist
“1) U.S. market realization that the country is becoming more isolated in world economy and not listened to; 2) Brexit; 3) Chinese becoming more self-sufficient in requirements hitting all those depending on it to drive growth.” Sell Side, Consumer Staples
“1) Aggressive recent run up in public U.S. equity valuations; 2) Oversupply of private equity capital driving up purchase price multiples; 3) Abundance of cheap domestic oil supply.” Buy Side, Multi
“1) It has been an extended cycle; 2) A lot of political instability; 3) Geopolitical concerns.” Sell Side, Generalist
“1) That the market has priced in too many positive policies out of D.C.; 2) Global unrest/terrorism; 3) The global economy.” Buy Side,
“1) Can the U.S. government pass anything?; 2) China slowdown and worldwide effects; 3) Brexit.” Sell Side, Tech
Tech
“1) Market valuations; 2) Market not discounting dysfunction in D.C.; 3) Geopolitical issues not being discounted.” Sell Side, Tech “1) Low oil prices; 2) Low natural gas prices; 3) Tightening liquidity.” Sell Side, Energy
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Nearly 90% Expect U.S. GDP to Sustain or Trend Higher Following Solid Reported Growth; Sentiment on Global Trade Improves Significantly
Views on U.S. GDP and Global Trade U.S. GDP
Global Trade
89% 52%
78% 38%
42%
35%
Improving Staying The Same 36%
47%
21% 43%
Worsening 41%
12%
11%
Mar '17
Jun '17
22%
Mar '17
CORBIN ADVISORS
Jun '17
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Sector Optimism And Pessimism Trends Intact: Technology Continues Its Dominance While Energy Volatility And Derivative Exposure Have Spooked Investors
59% 63%
Technology 40%
Biotechnology
57% 49%
36% 30% Mar '17
36% 32% 32% 27% 26% 25%
Financials
35%
Energy
36%
Cons. Staples 50%
Industrials
50%
Cons. Disc.
29% 37%
Healthcare
37%
REIT
40% 39%
Building Products
26%
Energy
51%
Financials
45% 39%
Utilities
32%
Telecom
Jun '17
25% Mar '17
Technology Cannot Be Stopped While Biotech Bulls More Than Double From Two Quarters Ago Amid Deregulation Hopes
Jun '17
Bears Remain Generally Consistent Across the Board with Energy Seeing the Most Significant Uptick; REITs Starting to Break the Negative Perception Barrier?
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Interesting Trends and Inflections In Sector Sentiment Over Two Years
Biotechnology
Technology
Healthcare
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%
Industrial
Energy
REIT
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%
Bulls
Bears
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Trump Policy Reforms See Decreased Likelihood of Passage in 2017 While Healthcare Bill Is Defined By Largely Muted Sentiment
Impact of Reforms on U.S. Economy and Likelihood of Passage in 2017
U.S. Corporate Tax Cut
Likelihood of Passage in 2017
6% 2% 59%
92%
28 pts
-2 pts
Infrastructure Expansion Program
76%
5% 68%
19%
7 pts
+8 pts
U.S. Personal Tax Cut
74%
47%
16 pts
7%
63%
6 pts
10%
44%
24 pts
10%
58%
9 pts
13%
8 pts
25%
11 pts
17%
9%
-3 pts
Repatriation
71%
22%
-7 pts
Immediate Depreciation of Capex
55%
35%
-8 pts
Large Defense Spend Increase
47%
43%
+2 pts
Border Adjustment Tax
18%
29%
53%
+1 pt
Interest Non-deductibility
12%
37%
51%
-8 pts
Healthcare Bill *
12%
66%
Positive
Neutral
22%
44%
Negative
*New measure CORBIN ADVISORS
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Welcome To Wally World: D.C. Dysfunction Trumps Brexit
Level of Geopolitical Concern*
Brexit
Dysfunction in D.C.
37%
25% 55% Concerned
34%
Confirm D.C. dysfunction is impacting investment decisions
“Given the rise in valuations since the election, concerned regarding the realization of the thematic aspects that have driven investor sentiment.” Buy Side, Generalist, N.A. “Being more conservative; the market is not discounting this.” Sell Side, Tech, N.A.
Somewhat Not At All
“Moving to an increasingly cautious stance.” Sell Side, REIT, N.A.
26% 34% 15%
“Not yet; staying slightly hedged.” Buy Side, Generalist, N.A. “As long as I don't need to justify an investment based on positive policy out of D.C.” Sell Side, Tech, N.A.
* No opinion: Brexit (7%), Level of Dysfunction in D.C. (4%) CORBIN ADVISORS
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