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EPS Revisions Flashing an Amber Warning

FTSE Russell

Contributor:
FTSE Russell
Visit: FTSE Russell

By:

Head of Global Markets Research

The decisive rebound in the EPS revision cycle from the pandemic lows in June has provided much of the firepower behind this summer’s risk rally. But signs that this uptrend may be losing steam bear watching.

Expectations still see strong global EPS growth recovery for 2021

As shown in the color-coded chart below, consensus forecasters still look for a robust EPS growth recovery across global markets from this year’s pandemic-stricken profit downturn. Estimates range from the more than four-fold bounceback for the Russell 2000 at the high end (dark green)—off of the steepest profit recessions of any market this year—to the 25% rebound for the FTSE Asia Pacific ex Japan at the low end (dark red).

Consensus EPS growth forecasts (%)—2020 and 2021 vs Jan 2020 estimates

Consensus EPS growth forecasts (%)—2020 and 2021 vs Jan 2020 estimates

Source: FTSE Russell / Refinitiv. Data as of September 15, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.

This positive outlook is also echoed in consensus EPS estimate trails for the FTSE All-World. As shown below, the downtrend in 2020 EPS forecasts appears to have bottomed, while 2021 numbers have swung higher.

FTSE All-World Consensus EPS estimate trails (USD)

FTSE All-World Consensus EPS estimate trails (USD)

Source: FTSE Russell / Refinitiv. Data as of September 15, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

EPS revisions (a leading indicator) flashing amber warnings

Revisions to 12-month-forward EPS forecasts have been in a powerful upswing since June, helping to buoy risk appetite. However, while revisions for the Russell 1000, FTSE UK and FTSE Asia Pacific are still in positive territory they are now losing momentum. With hopes for a robust EPS recovery next year still riding high, any further deterioration or a negative turn in the revision cycle could create headwinds for markets.

Three-month revisions to 12-month forward EPS forecasts (% change)

Three-month revisions to 12-month forward EPS forecasts (% change)

Source: FTSE Russell / Refinitiv. Data through September 15, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Originally Posted on September 17, 2020 – EPS Revisions Flashing an Amber Warning

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