Hot Stoxx summer

Katie Martin (0:09)

We've been in earnings season when companies that are listed on the stock markets tell the world how they're performing and give us a sense of what lies ahead. US earnings have been pretty spectacular, helping the US stock market to crack out some record highs after a pretty long period of dawdling around going nowhere.

So, American exceptionalism, baby, back in the game. Go, go, go. All fuelled by the miracle that is big tech and the AI trade. Okay, fine. But quietly, you know what? Europe is having a great run. It's comfortably keeping pace with the US stock market performance despite the lack of tech superpowers and the lack of that chest thumping bravado that we get from our noisy American friends. Again, hi, Rob. Hope you're enjoying your holiday.

Today on the show, we mean at this time, make Europe great again. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT on the planet Mercury. I mean, in London, same temperature. Joining me down in the bunker of FT Towers is my right hand man, the guy who does the hard work on the actual markets news here at the FT, Ian Smith.

Ian, thanks for coming back on.

Ian Smith (1:27)

Thanks for having me back.

Katie Martin (1:29)

So yeah, I mean, these Americans, they eat up a lot of global brain space, don't they? Everyone's talking about how amazing the American earning season has been, how much money all these companies are making, how great the stock market is. Let's just settle slightly on that. That is a thing, isn't it? They've been doing brilliantly.

Ian Smith (1:47)

They have been doing brilliantly. Even if you strip out the massive gains they get from the equity investments they have in tech themselves, which inflate their earnings, they are still doing amazingly.

Katie Martin (1:57)

Yeah, these companies are making serious money and more money than the analysts have been expecting.

Ian Smith (2:03)

Yeah, they've had a really good second quarter earnings season, earnings per share growth around 30%. And that's if you exclude those equity investments, like the other income from those that I mentioned. And it's been something that has fed broader market stability and it has fed this AI narrative, which is really just the Leviathan in global markets in terms of a dominant narrative.

Katie Martin (2:25)

Yeah, so in US markets, we've had this kind of weird period where there's been a lot of churn under the surface, right? Kind of hyperscalar stocks, like companies that consume a lot of these AI services and invest a lot in AI stuff. They did really well, then they sort of fell out of favor, and it was the chip stocks that were doing really well, and they were kind of battling against each other almost. But on an index level, the US market just sort of didn't really go anywhere for about six weeks. But earnings season does seem to have added that little bit of bababoo and helped the market go to new highs.

Ian Smith (2:59)

You have seen times where people have focused on the cash outflows from some of these groups and worry about that and the sustainability of the spending by the hyperscalers, but earnings has been really robust. And that's the thing that sets it apart from say dotcom and previous market speculative bubbles, is that there are real earnings, there's real revenue being made.

Katie Martin (3:21)

Yeah, yeah, they're making some serious cash.

But the US is not the only game in town, right? So I was talking to a chap called Vincenzo Vedder, who's the Chief Investment Officer at DWS the other day. And he was saying that they run sessions in Asia for investors called Gateway to Europe. And they explain to investors over there, this is how Europe works, this is what the EU is. So this is what the European Union is, this is how the member states work, this is the difference between them two. A real kind of ABC of Europe education program for investors out in Asia, because they haven't touched European stocks for so long, some of them. Doesn't make them stupid people, just makes them perfectly rational investors. There's been almost no earnings growth out of Europe for a really long time, so they've just ignored Europe. And now all of a sudden, they want to have a little bite at it again, and they're interested in finding out more. And I think it's interesting that there's appetite for those sorts of let's find out about Europe educational sessions. But it's also like, oh boy, like something has gone really wrong here, that people have kind of forgotten that Europe exists as an investment destination. I don't know, there's just a lot of work to do to get people to realize it's there.