The Earnings test

It increasingly looks like this has been one of the best starts of the year for European equities over the last decades. Short covering, early indications of peak inflation and falling gas/electricity prices due the mild winter can be read as the main reasons for the rebound of 17.5% of MSCI Europe since end of September 2022. To us, the real test to the growing investor optimism is the upcoming earnings season. We note that earnings expectations have started to come done as we start seeing profit warnings, job cuts and weaker company outlooks. In this environment, we believe our approach of investing in quality companies with undervalued earning power continues to make a lot of sense as it allows us to look through the market noise.