1、FOCUSU.S. Equity StrategyStay Close to HomeINDUSTRYUPDATEU.S. EquityStrategyEquityResearch5March2019In our view, U.S. equities are trading close to fair value after rebounding fromthe lowsofDecemberandanyfurtherupsideislikelytobelimited.Weexpectalmostno earningsgrowthfor2019,primarilybecauseofaslowd

2、owninnon-U.S.economies.On theotherhand,theU.S.economyremainsonasolidfooting,especiallygivenapatient Fed and potential relief around U.S.-China trade tensions. Given this divergence, we prefertoavoidstockswithhighexposuretointernationalmarketsandinparticularto Europe,whichappearsmostvulnerableinourvi

3、ew.Weconstructauniquedatasetof geographicalsalesexposureforMSCIWorldcompaniestofilteroutUS-domiciled names most exposed toEurope.Q4 2018 earnings growth was robust but future growth expectations continue to decline.SPXearningscameinstrongat16%y/y(vsrestof2018at26%y/y)butthe surprisewasrelativelymode

4、stat1.2%.However,consensus2019growthcontinuedto slideandhasdroppedto3.5%from10%inSeptember.Theprimarydriverfordeclinein 2019growthexpectationsisconcernoveranon-USgrowthslowdown,asevidencedby thesharperfallingrowthexpectationsforstockswithhighinternationalsales.The YTD market rebound was driven by a

5、recovery from a technical selloff in December, but further fueled by a reversal of fundamental drivers that drove the selloffinOctober.AlthoughriskshavebecomemorebalancedthaninQ42018,witha potentialUS-Chinatradedealintheworks,amorepatientFed,andimprovingefficacyof Chinesepolicies,webelievethereislim

6、itedupside.Inourview,aU.S.-Chinatradedeal islikelytobelimitedinscopeandalotofitseffectsarealreadypricedin.Althoughthe Chinacreditcycleisbottoming,aV-shapedrecoveryisunlikely.Further,wedontseea significantpickupinvaluationsgiventhelatestageofthebusinesscycle.Keyupsiderisks toourviewwouldbeamuchmoreco

7、mprehensiveU.S.-Chinatradedealandsignificant increaseinChinesefiscalstimulus.Given the divergence between U.S. and non-U.S. economies, we take a cautious view on stocks with high exposure to international markets in general and to Europe in particular.Weconstructauniquedatasetofgeographicalsalesexpo

8、sureforstocksin theMSCIWorldindex,whichallowsustakeanuancedviewofgeographicalsales exposure.AmongUS-domicilednames,whilenameswithhighEMandUSexposurehave almostcompletelyrebounded,nameswithhighEuropeanexposurehavelagged. Similarly,EuropeandomiciledstockswithhighexposuretoU.S.haveoutperformed.We expec

9、tthistocontinue,asEuropesmanufacturing-focusedeconomymakesitmore vulnerabletoaslowdowninglobalindustrialactivityandpoliticalturmoilremainsan overhang.Moreover,apotentialUS-Chinatradedealinvolvingasignificantincreasein ChinesepurchasesofUSgoodswouldhurtEuropeandbenefitUSduetoimport substitution.Wecon

10、structalistof34companiesthathavehighsalesinEuropeandthat arenotratedOverweightbyBarclaysanalysts.U.S. Equity Strategy Maneesh S. Deshpande+1 212 526 2953 HYPERLINK mailto:maneesh.deshpande maneesh.deshpande BCI, USElias Krauklis+1 212 526 9376 HYPERLINK mailto:elias.krauklis elias.krauklis BCI, USJa

11、pinder Chawla+1 212 526 2771 HYPERLINK mailto:japinder.chawla japinder.chawla BCI, USal n rteal n rten I-d e tc itr sReCapitalInc.oneofdoesandseekstodoinitsresearchAsabeawarethatthe mayhaveaofthattheofconsiderthisasonlyafactorinmakingtheirPLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES

12、 BEGINNING ON PAGE 15.Target:2750P/ERatio:16.5xEPS:Model Tracking Projections *S&P 500 P/E Model ProjectionsCurrent P/EFair Value P/EProjected 2019 P/E17.116.516.9S&P 500 EPS Model ProjectionsActual1Q182Q183Q184Q18CY201838.540.342.841.4163.1Forecast1Q192Q193Q194Q19CY2019Consensus EPS37.741.543.945.7

13、168.9Barclays ForecastEPS38.840.542.642.8164.8Forecast rowth3Q194Q19CY2019Consensus EPS-2.1%3.0%2.6%10.4%3.6%Barclays Forecast EPS0.7%0.5%-0.5%3.5%1.0%UWUWUTILUtilitiesUWCONDConsumer DiscretionaryUWINDUIndustrialsMWENRSEnergyMWCONSConsumer StaplesMWFINLFinancials+RealEstateMWCOMMCommunication Servic

14、esOWMATRMaterialsOWHLTHHealthCareOWINFTDisruptiveFinalAllocationOptimizedCycleCycle GovtPolicy AllocationTickerPriceModelSectorSector RecommendationsSource: Barclays Research. Consensus estimates are from Refinitiv; data as of 27 February 2019. OW = Overweight; MW = Market Weight; UW = UnderweightOv

15、erweight:TheperformanceoftheS&P500sectorisexpectedtooutperformtheperformanceoftheS&P500indexinthenext3-6monthsinlinewithoursector ratingdefinitionindisclosures.MarketWeight:TheperformanceoftheS&P500sectorisexpectedtoperforminlinewiththeS&P500indexinthenext3-6months. Underweight:TheperformanceoftheS&

16、P500sectorisexpectedtounderperformtheperformanceoftheS&P500indexinthenext3-6monthsTheModelTrackingProjectionsreflectthecurrentoutputofourEPSandP/Emodels,whichcandeviatefromourofficialpricetargetforecastsEquity Markets rebound stronglyEquitymarketshavereboundedstronglyYTDandareattheupperendoftherange

17、since October,2018.Aswehavediscussedinthepast( HYPERLINK /go/publications/content?contentPubID=FC2413982 U.S.EquityStrategy:EquitiesfearthatFed HYPERLINK /go/publications/content?contentPubID=FC2413982 isaheadofthecurve,October10th,2018),theinitialselloffinOctoberwasdrivenbytwo factors1)Concernsthat

18、theFedisgettingaheadofthecurveduetoChairmanPowells speechwhereinhesaidthatwearefarfromneutralratesandthecurrenteconomic expansioncouldcontinueand2)WorriesabouttheU.S.Chinesetradewarthattookona newforcegiventheexpectedsingledigitearningsgrowthduring2019.Thisviewissupported bythefactthattheselloffduri

19、ngthistimeperiodwascharacterizedbyasignificantrotation fromcyclicaltodefensivestocksandbytherelativeunderperformanceofstocksmore exposedtoU.S.-Chinatradewar.ThesecondsharperselloffinDecemberwasinouropinionmoretechnicalinnatureandwas drivenbysignificantsouringofretailsentimentcoupledwithpoorliquidity

20、.Aswehave shown( HYPERLINK /go/publications/content?contentPubID=FC2430005 U.S.EquityStrategy:Binaryrisks,January7th,2019),surveybasedmeasuresofretail sentimentturnedquitebearishandtherewasasurgeinGooglesearchesfor“recession”. Moreimportantly,mutualfundflowsturnedsharplynegativeduringDecember.Inaddi

21、tion, hedgefundoutflowswhichhadalreadybeennegativeduringthepreviousthreemonths ($88B cumulative according to BarclayH) further accelerated to $42B in December.Although,therewassomemorenegativefundamentalnewsflow(Feddidhikein December,ChinamacroeconomicdataturnedworseandUSpoliticalturmoilcontinued),w

22、e notethattheDecemberselloffwasmuchmoreindiscriminate.Indeed,cyclicalstocksdidnot materiallyunderperformandthusthisepisodewasmoreakintotheoneduringFebruarylast year.Theeffectoftheseoutflowswascompoundedbypoorliquidity.Aswehavediscussed, liquidityinequityfutureshasdeclineddramaticallysincethebeginnin

23、gofthisyearandthe effectoftheholidayseasonmadethingsworse.GiventhattheselloffduringDecemberwasaresultofcapitulationbyasegmentofinvestors, asharpreboundwasnotcompletelyunexpectedtous.However,therallywasfurtherfuelled bythefactthatthetwonegativecatalystsappeartohaveturnedaroundoverthepastmonth:Firstly

24、,theFedhascompletelyreversedcourseandhascommunicatedthatithaspaused andislikelytobepatientanddata-dependent.Oureconomistsnowexpectonlyonehike thisyearwhiletheFedfundfuturesarepricinginzerohikes.Secondly,therearenowsignsthataU.S.-Chinatradedealisintheoffing.TheTrump administrationhasextendedtheMarch1

25、deadlineand,althoughafullresolutionofall theissuesisunlikely,apartialdealwhereChinaagreestoincreaseU.S.importsappears morelikely( HYPERLINK /go/publications/content?contentPubID=FC2440553 China Outlook: Not a trade deal for everyone,February22nd,2019).Thirdly,wenotethatdespitesomestressintheindustri

26、alpartoftheU.S.economy,the corelabourandconsumermarketsremainstrong.Thuswemaintainourviewthatan outrightU.S.economicrecessionremainsunlikelyforthisyear.However,aswediscussinthenextfewsectionsakeyriskforU.S.equityearningsislikelyto be“imported”.Earningsend 2018 strong,with expectedweaknessaheadInthis

27、section,webrieflyreviewtheresultsoftherecentlyconcluded4Q18earningsseason.TheS&P500indexcontinueditsrecentstrengthinquarterlyYoYEPSgrowthin4Q18 (+15.9%),withitsfourthstraightdoubledigitquarter.Althoughthecurrentquarterwasnt asstrongas1-3Q18(averageof26%YoYGrowth),itisstillwellabovethepostcrisisavera

28、ge. However,despiteloweroverallgrowth,earningssurprisewasonthelowside(+1.2%vs5.5% 1-3Q18),indicatingthattherecenttemperinginexpectationshasbeenwarranted.FIGURE 1While4Q18sawcontinuedstrength,itlaggedtherestof 2018inbothgrowthandsurpriseFIGURE 24QEarningsbeatconsensusbythelowestamountin2018 andwerebe

29、lowgrowthprojectedbyourtop-downmodelYoY30%25%20%15%10%5%0%Sector4Q18 EPS YoYEarnings SurpriseHLTH14.0%3.0%INDU27.3%2.7%UTILSector4Q18 EPS YoYEarnings SurpriseHLTH14.0%3.0%INDU27.3%2.7%UTIL-15.9%-5.9%ENRS77.4%8.7%MATR18.2%-4.3%CONS0.3%1.4%FINL17.4%-1.0%COMM30.9%7.8%COND11.3%-0.7%INFT7.8%-1.2%SPX15.9%

30、1.2%ActualGrowthConsensusGrowthMacroProjectedGrowthSource: Barclays Research, RefinitivNote:Earningssurprisemeasuredrelativetoconsensusasonedaypriortothe reportdate.EarningsSurpriseisdefinedasthepercentagedifferencebetween thetotalreportedNetIncomevsthetotalconsensusNetIncome.Source:BarclaysResearch

31、,RefinitivNote:Consensusmeasuredatthestartoftheearningsseason(e.g.March2018 for2018Q1,June2018forQ2,etc.)FIGURE 3Whilethe%ofcompaniesbeatingearningsremainedhigh,it droppedsharplyfromlastquarterFIGURE 4Thedeclineinearningsgrowthisexpectedtocontinue,as mostcompaniesloweredtheir2019guidancethisquarter%

32、 ofreported 70%60%50%40%20%10%0%Q4 2018 EPS SurpriseBeatMetMissed% of reported 60%2019E Consensus Change (Dec to Current)50%2019E Consensus Change (Dec to Current)40%30%20%10%0%HigherReaffirmedLowerSource: Barclays Research, RefinitivNote:EPSSurprise=actualEPSminusconsensusnormalizedbyprice1-day pri

33、or.ABeat/Miss=EPSSurprisegreater/lessthan0.2%/-0.2%Source: Barclays Research, RefinitivNote:Higher/LowerConsensusChange=increase/decreaseof2019EPSby more than0.5%.Thestrengthinearningsgrowthwasrelativelybroadbasedacrosssectors,withover60%of companiesbeatingexpectations.However,muchliketheweakeningof

34、earningsgrowthin 4Q18, the % of companies beating expectations fell from the prior quarter (70%of companiesbeatin3Q18).FIGURE 5Percentageofcompaniesbeatingexpectationshasfallenfromrecentmulti-yearhighsto a more normallevel%EPS80%Beat%Jun-93Jun-96Jun-99Jun-02Jun-05Jun-08Jun-11Jun-14Jun-17Beat%Source:

35、 Barclays Research, Refinitiv2019earningsexpectationscontinuetodeclinedrivenby “imported”troubleWhileearningsgrowthwasalwaysexpectedtodeclinein2019astheonetimeeffectsof fiscalstimulusabate,theexpectedmagnitudehasincreasedsubstantiallyoverthepastfew months.Infact,consensusgrowthprojectionsfor2019have

36、fallenfrom10.5%inSept,2018, to7.3%inDec,2018,toacurrentlevelofonly3.5%EPSgrowth.Figure7calculatesthe declineinconsensusearningsgrowthprojectionsoverthesamecalendarmonthsforthepast fewyearsandweseethatthedeclineisquiteunusual.Theclosestcomparableepisodewas during2015and2016andaswediscussbelowthissimi

37、larityisnotsuperficial.FIGURE 62019EPSgrowthexpectationshavetrendeddownsharply since3Q18ConsensusConsensusEPSYoY10.0%8.0%6.0%4.0%2.0%0.0%Jun-17Dec-17Jun-18Dec-182019Post-CrisisAverageFIGURE 7The decline in projected current year EPS from last SeptembertoFebruaryisthestrongestfor2019since201510%5%0%-

38、5%-10%-15%-20%-25%2006200820102012201420162018Sept To Feb Projected Growth ChangeSource: BarclaysResearch,RefinitivSource:BarclaysResearch,RefinitivFromanotherperspective,NTMearningsexpectationsarenearpost-crisislowswhichalso occurredduringthe2015-2016mini-industrialrecession.FIGURE 8Thecurrentlevel

39、ofprojectedNTMEPSgrowthisthelowestsincethemini-industrials recession of 2015 -201650%40%30%20%10%0%-10%-20%Jan-05Jan-07Jan-09Jan-11Jan-13Jan-15Jan-17NTMSPXEPSGrowthSource: Barclays Research, Thomson ReutersFigure9showsthatthedeclinein2019projectednetincomeismostprominentinEnergy, Tech,andMaterials,a

40、llofwhichhaveasubstantialportionoftheirsalesfromnon-US sources.Thedeclineinearningsexpectationsforthecommoditysectorswasprimarilydriven bythedropinoilpriceslastquarter,andbeyondthesesectorsthereisverylittlevariationin thedeclineinprojectednetincome,leadingustolookforotherexplanationstofalling expect

41、ationsthanasimplesectorattribution.FIGURE 9Sectorswithhigherlevelsofinternationalsalesexposurehaveseenthestrongestdecline in 2019 expectedgrowthChange in 2019 Proj Net Income since 9/20185.0%0.0%-5.0%-10.0%-15.0%-20.0%-25.0%-30.0%ENRSMATRINFTFINLTELSCONSINDUCONDHLTHUTILSource: Barclays Research, Ref

42、initiv“Imported” TroubleInourviewthisdramaticdropinearningsexpectationsisbeingdrivenbyaslowdowninnon- USeconomies.Indeed,wedontthinktheU.S.economyisasignificantsourceofriskforU.S.equityearnings. TheU.S.economyisexpectedtoslowthisyearrelativetotherapidexpansionin2018asthe onetimeeffectsoffiscalstimul

43、usfade.However,thecurrentlevelofexpectedGDP(Bloombergconsensus2.5%)isabovethetrendobservedduringtheexpansionpriorto2018 andstillrepresentsquiteahealthylevel.OurbasecaseisthataU.S.economicrecessionis unlikelyduring2019.Althoughseveraloftheleadingeconomicindicatorswetrackhave turnedorangetheyarenotfla

44、shingredyet,andourquantitativemodelindicatesthatweare only80%ofthewaythroughthecurrentexpansion.AmorepatientFedislikelytofurther extendtheexpansionallelsebeingequal.However,akeyconcernistheslow-downinnon-USeconomies,particularlyinChinaand Europe.Indeed,whiletheU.S.economycontinuedtoaccelerateduring2

45、018,non-US economicgrowthalreadypeakedinthebeginningof2018.Inourviewthekeydriverforthis isthereversalintheChinacreditcycle,whichalsostartedtoturnaroundattheendof2017. Weemphasizethatthiscreditgrowthslowdownwasself-inducedbytheChineseauthorities astheysoughttoreversetheeffectoftheirpreviousroundoffis

46、calstimulusinitiatedin2016.Whiletheslow-downinnon-U.S.economicgrowthonlymarginallyimpactstheU.S.economy sinceitislargelyclosedanddominatedbypersonalconsumption,thatdoesnotmeanU.S. equitiesareimmune.Inparticular,30%oftotalsalesforcompaniesintheS&P500indexare ofinternationalorigin,andthispercentageise

47、venhigherforsomesectors.Totrytoisolatenon-USsalesexposurewedividethestocksinS&P500intofivebuckets.We firstseparatestockswithzerointernationalsalesexposureintothefirstbucketandthen dividetherestintofourquartilesbasedontheir%ofsalesfrominternationalmarkets.Aswe showedinourpreviousnote( HYPERLINK /go/p

48、ublications/content?contentPubID=FC2430005 U.S.EquityStrategy:Binaryrisks,January7th,2019),overthe past decade the relative performance of stocks with the highest International sales percentagehasbeencloselysynchronizedwiththeChinacreditcyclewithaoneyearforward lag.Indeed,wefindthatstockswiththehigh

49、estinternationalsaleshaveseenthesharpest declinesin2019NetIncomeexpectations(Figure10)andarecontributingto53%ofthe overalldeclineinSPX2019Eearnings(Figure11).FIGURE 10Stockswiththehighestinternationalsaleshaveexperienced thelargestdeclinein2019consensusEPSChangeinForecasted2019NetIncome 2%0%-2%-4%-6

50、%-8%-10%-12%-14%-16%Sep-18Oct-18Nov-18Dec-18Jan-19NoIntSalesQntl1Qntl2Qntl3High IntSalesSource: Barclays Research, RefinitivNote:Theinternationalsalesbasketsarecalculatedusinginternationalsalesasa%oftotalsalesandSPXconstituentsasof12/31/2018.TheNoInternational salesbasketcontainsstockswithnointernat

51、ionalsales,whiletheremaining stocksaredividedintofourquantilesFIGURE 11leadingtothelargestcontributionstothedeclineinEPS expectationsContribution to 2019E decline since 9/20186.0%5.0%4.0%3.0%2.0%1.0%0.0%NoIntSalesQntl1Qntl2Qntl3High IntSalesSource: Barclays Research, Refinitiv2015 mini-industrial re

52、cession: De-ja vu?Thisinternationalgrowthinduceddeclineinearningsexpectationsisquitesimilartowhat happenedduringthe2015/16mini-industrialrecession.Asmentionedinournote HYPERLINK /go/publications/content?contentPubID=FC2437049 U.S.Equity HYPERLINK /go/publications/content?contentPubID=FC2437049 Strat

53、egy:FedPutReactivated,February7th,2019,thepoorindustrialoutputin2015/16was partiallydrivenbyweaknessinoil,butmainlystemmedfromthetroughintheChinacredit cycle.Duringthattimecompanieswithhighinternationalexposuresawmuchstarkerdecline intheirprojected2016earnings,similartotoday.(Figure13)FIGURE 12Lower

54、industrialproductionin2015wasdrivenbya weakeningChinacreditcycleMini Industrial RecessionMini Industrial Recession5%0%-5%-10%-15%-20%Dec-85Dec-91Dec-97Dec-03Dec-09Dec-15FIGURE 13 which resulted in the strong decline in the EPS expectations for stocks with high international exposureChangeinForecaste

55、d2016NetIncome 5%0%-5%-10%-15%-20%-25%Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16Qntl3HighIntIndustrialsProductionYoY NoIntSales Qntl3HighIntSource: BarclaysResearch,BloombergSource:BarclaysResearch,RefinitivNote: The international sales baskets are calculated using international sales as a%oft

56、otalsalesandSPXconstituentsasof12/31/2015.TheNoInternational salesbasketcontainsstockswithnointernationalsales,whiletheremaining stocksaredividedintofourquantilesIn 2016, the Chinese authorities responded to the weakening credit conditionswith significantfiscalstimulus,resultinginareboundinU.S.indus

57、trialproductionaswellas2016 earningsexpectations.ThecentralquestioninourmindiswhethertheChineseauthoritieswillembarkonasimilar rescueoperationthistimearound.Whiletheyhaveimplementedaseriesofmeasuresover thepastfewmonths,thesearelessdramaticthanseenduringpreviousepisodes.Apotential reasonfortheirmore

58、targetedandcautiousapproachmightbetheconcernthatmore aggressivemeasureswouldonlyexacerbatetheexistingimbalancesinthesystemcreatedby previousrounds.However,thecurrentsetofpoliciesarebeginningtohaveanimpactand,whileastrongV- shapedreboundofthecreditcycleisunlikely,fornowitdoesappeartohavebottomed (Fig

59、ure14).Specifically,PBoCsnewpolicymeasuresfocusedonloweringtherealeconomys fundingcosts(throughRRRcutsandTMLFinjection)andofferingbanksincentivestolend toSMEsandcorporatesareleadingtocreditgrowthintheChineseeconomy.Figure15 highlightsthekeyfiscalandmonetarymeasuresbyChinesepolicymakersandPBoCin2018

60、and our Chinese economists expectations for 2019 ( HYPERLINK /go/publications/content?contentPubID=FC2440998 China pulse check: Bottoming, but not HYPERLINK /go/publications/content?contentPubID=FC2440998 out,February26th,2019).FIGURE 14Chinascreditcycleappearstohavebottomedout% 45403530252015FIGURE