Riding a global
earnings upswing

Feb 21, 2017 / By Richard Turnill

Key points

  • We see an improving growth outlook supporting company earnings, especially in Europe and Japan.
  • Stronger risk appetite and economic data pushed global equities to record highs. Government bond yields rose.
  • This week’s February PMI data from major economies are likely to hover near the strong levels hit in previous months.

Upbeat global earnings are confirming that the benefits of reflation – rising wages, growth and inflation – are spreading beyond the U.S. We see room for more upside for corporate profits, especially in Europe and Japan.

Changes in earnings estimates, 2012-2017

Changes in earnings estimates, 2012-2017

Sources: BlackRock Investment Institute, MSCI and Thomson Reuters, February 2017.
Notes: The lines show the three-month change in the aggregate 12-month forward earnings estimates. The data are based on MSCI U.S., Europe, Japan and Emerging Markets indexes.

Analysts have become increasingly upbeat about corporate earnings in Japan, emerging markets and Europe since late 2016. Earnings estimates have been revised up in these markets, and lowered slightly in the U.S., as the chart shows. Japan leads the crowd.

Here to stay: earnings momentum

Global earnings are collectively posting some of their best performance since the end of the financial crisis. We expect this trend to extend as world growth gains momentum. Our BlackRock GPS, which offers an early peek at the likely evolution of growth expectations for key economies, signals upside surprises for Japan, France and Germany. We believe this growth will translate into even stronger earnings in these markets over coming quarters, similar to the U.S. experience in the second half of 2016.

Japan’s earnings are particularly impressive. The December quarter pre-tax profits rose 11% on the year to the highest level in a decade. The rebound in commodity prices, a softer euro and stronger economic growth are setting European earnings on course for the best quarter since 2011. But investors are just warming up to Japanese and European shares − one reason we favor both over the U.S. Our analysis shows few signs of overly bullish positions on Japanese and European equities, suggesting more room for investors to step in.

Two sector trends stand out globally: Steeper yield curves and improving net interest margins have boosted profits for global financials, while long-term demand trends have lifted technology revenues. Management sentiment, which BlackRock’s Scientific Active Equity team captures by text mining company conference calls, reflects an upbeat and improving outlook in these sectors.


  Date: vertical line Event
Feb. 21 Eurozone, Japan and U.S. Purchasing Managers’ Indexes (PMIs)
Feb. 22 Eurozone inflation (final release); Fed meeting minutes
Feb. 24 U.S. new home sales

February’s PMI data are expected to moderate from the very strong levels reached in recent months, underpinning the global reflation picture.

  • Stronger risk appetite and economic data pushed global equities to record highs. Government bond yields rose.
  • U.S., UK, Germany and China data highlighted the global pickup in inflation. But Japanese and European gross domestic product data came in marginally below expectations.
  • Federal Reserve Chair Janet Yellen said inflation and labor market are both close to targets, but the economic outlook is uncertain. Markets raised the probability of a March rate increase.

Global snapshot

Weekly and 12-month performance of selected assets


EquitiesWeekYTD12 MonthsDiv. Yield
U.S. Large Caps 1.6% 5.0% 22.0% 2.1%
U.S. Small Caps 0.8% 3.3% 40.5% 1.3%
Non-U.S. World 0.9% 5.5% 20.0% 3.1%
Non-U.S. Developed 0.9% 4.4% 15.8% 3.3%
Japan 0.3% 4.7% 22.9% 2.0%
Emerging 1.0% 9.0% 30.7% 2.7%
Asia ex-Japan 0.9% 9.4% 27.1% 2.6%
BondsWeekYTD12 MonthsYield
U.S. Treasuries -0.1% 0.4% -1.3% 2.4%
U.S. TIPS -0.2% 0.8% 4.4% 2.4%
U.S. Investment Grade 0.1% 0.7% 7.0% 3.3%
U.S. High Yield 0.2% 2.2% 23.8% 5.8%
U.S. Municipals -0.2% 0.7% -0.6% 2.5%
Non-U.S. Developed 0.3% 1.2% -1.2% 0.8%
Emerging Market $ Bonds -0.1% 2.6% 12.9% 5.5%
CommoditiesWeekYTD12 MonthsLevel
Brent Crude Oil -1.6% -1.8% 61.8% $55.81
Gold 0.1% 7.6% 2.2% $1,235
Copper -2.1% 7.7% 29.9% $5,960
CurrenciesWeekYTD12 MonthsLevel
Euro/USD -0.3% 0.9% -4.6% 1.06
USD/Yen -0.3% -3.5% -1.1% 112.84
Pound/USD -0.6% 0.6% -13.2% 1.24

Source: Bloomberg. As of February 17, 2017.
Notes: Weekly data through Thursday. Equity and bond performance are measured in total index returns in U.S. dollars. U.S. large caps are represented by the S&P 500 Index; U.S. small caps are represented by the Russell 2000 Index; Non-U.S. world equity by the MSCI ACWI ex U.S.; non-U.S. developed equity by the MSCI EAFE Index; Japan, Emerging and Asia ex-Japan by their respective MSCI Indexes; U.S. Treasuries by the Bloomberg Barclays U.S. Treasury Index; U.S. TIPS by the U.S. Treasury Inflation Notes Total Return Index; U.S. investment grade by the Bloomberg Barclays U.S. Corporate Index; U.S. high yield by the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index; U.S. municipals by the Bloomberg Barclays Municipal Bond Index; non-U.S. developed bonds by the Bloomberg Barclays Global Aggregate ex USD; and emerging market $ bonds by the JP Morgan EMBI Global Diversified Index. Brent crude oil prices are in U.S. dollars per barrel, gold prices are in U.S. dollar per troy ounce and copper prices are in U.S. dollar per metric ton. The Euro/USD level is represented by U.S. dollar per euro, USD/JPY by yen per U.S. dollar and Pound/USD by U.S. dollar per pound. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index. Past performance is not indicative of future results.

Asset class views

Views from a U.S. dollar perspective over a three-month horizon

Table: Asset class views from a U.S. dollar perspective


Richard Turnill
Global Chief Investment Strategist, BlackRock Investment Institute
Richard Turnill is Global Chief Investment Strategist for BlackRock. He was previously Chief Investment Strategist for BlackRock’s Fixed Income and active Equities business ..
Kate Moore
Chief Equity Strategist