In spite of second-quarter and first-half earnings being horrific, equity markets have rallied, as earnings surprises, at least in the US, have been extraordinarily positive. Europe did not do as well: surprises have been largely negative. This helps explain the market’s underperformance.
While there is room for earnings forecasts to be adjusted upwards, the main risks are the re-imposition of strict, nationwide lockdowns and high US tech valuations. On the first, governments appear reluctant to take such economically damaging measures again. On the second, tech multiples can stay high for longer in a world of low growth and low interest rates.
A disaster foretold
The consequences for corporate profits of the lockdowns are becoming apparent as second quarter/first half earnings roll in. After a 13% fall in profits in the first quarter for the US, and -30% in Europe, this quarter was expected to show declines of more than 40%.
While results have been bad across the board, energy, airlines and financials accounted for two-thirds of the losses at S&P 500 companies, even though they make up just 14% of the market capitalisation.
The figures have come in alongside rising markets, however, because earnings surprises have been exceptionally large and positive, at least in the US. That should not be startling given the general lack of earnings guidance from companies and the pervasive uncertainty around the course of the pandemic and the response of governments.
Beating expectations – the US leads Europe
US company earnings beat analyst expectations by 20%. Importantly, the surprises have been spread across sectors except for energy. Although headlines have highlighted the blowout results for tech stocks, the broad tech sector accounted for just a quarter of the surprises for the whole index.
Results in Europe were less encouraging. This helps explain why the index underperformed by 7% this month despite the region’s better management of the pandemic. Lockdowns were imposed earlier, lasted longer, and were more restrictive in Europe. The impact on GDP was commensurately larger: the US economy shrank by 9% in the second quarter, the forecast for the EU is -15%.
However, this difference should already have been reflected in earnings estimates. For the MSCI Europe index, surprises are -3%. Excluding energy, surprises are -8%. For those sectors that have had positive surprises, several have averaged just 1.7% compared to 50% for the US S&P 500.
All is not negative, however. Several industries have managed to grow year-on-year earnings significantly, particular technology, healthcare, and (home) entertainment (see Table 1).
Table 1: Top sectors for year-on-year earnings growth
Data as at 5 August 2020. Source: Bloomberg, BNP Paribas Asset Management
Supporting the market – positive guidance and upward revisions
Companies that have continued to guide on future results were inevitably ones with a positive story to tell. Just 220 companies provided an outlook, down from nearly 500 at the same point last year. Their guidance was exceedingly positive, with nearly 60% of companies raising guidance.
Earnings revisions have also supported the market, though more so in the US. Upward revisions in the US are nearly twice downward revisions and the ratio has been improving for the last several months. In Europe, the trend is positive, but the ratio is only just now reaching parity.
Threats to further gains
Given the surge in infections in many other parts of the world, the key question is whether this momentum can be sustained. So far, renewed restrictions have generally been limited to bars and restaurants, which represent a small part of most economies. If more severe lockdowns become widespread, market optimism will likely fade quickly.
Bullish investors have focused on improvements in coronavirus treatments, even as most acknowledge a vaccine will not be available widely in the near term.
Analyst expectations suggest there is still room for earnings to rise (see Exhibit 1). The ability for further upside assumes a second wave does not lead to a double dip (recession), but the hurdle seems high for governments to re-impose economically costly nationwide lockdowns.
The other main threat to the market’s gains is tech sector valuations. The second-twelve-month forward price-earnings ratios for the US ex-technology market and for Europe are above average, but still below the highs over the last decade. However, for the broad tech sector, the measure is now at levels reminiscent of the tech bubble of the late 1990s (see Exhibit 2).
Earnings estimates are likely to rise as they incorporate the latest earnings surprises. This should lower the multiple. Moreover, the long-term growth rate estimate for broad tech has risen by nearly 100bp this year, while it has fallen by 60 bp for the rest of the US market and by 200bp for Europe.
What might spark a correction?
Ahead of the US presidential election, anti-China and anti-trade rhetoric by president Trump will likely continue and tech might underperform the rest of the market. A Democratic sweep would increase the odds of higher taxes and regulation for the sector.
That said, the peak in the tech bubble in 2000 did not arrive for 15 months after multiples were at the same level as they are today.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
In this specific predicament, U.S. officials have to choose a strategy to deliver the aid without the perception of benefiting Hamas, a group the U.S. and Israel both classify as a terrorist organization.
When aiding people in war zones, you can’t just send money, a development strategy called “cash transfers” that has become increasingly popular due to its efficiency. Sending money can boost the supply of locally produced goods and services and help people on the ground pay for what they need most. But injecting cash into an economy so completely cut off from the world would only stoke inflation.
So the aid must consist of goods that have to be brought into Gaza, and services provided by people working as part of an aid mission. Humanitarian aid can include food and water; health, sanitation and hygiene supplies and services; and tents and other materials for shelter and settlement.
Due to the closure of the border with Israel, aid can arrive in Gaza only via the Rafah crossing on the Egyptian border.
The U.S. Agency for International Development, or USAID, will likely turn to its longtime partner on the ground, the United Nations Relief and Works Agency, or UNRWA, to serve as supply depots and distribute goods. That agency, originally founded in 1949 as a temporary measure until a two-state solution could be found, serves in effect as a parallel yet unelected government for Palestinian refugees.
USAID will likely want to tap into UNRWA’s network of 284 schools – many of which are now transformed into humanitarian shelters housing two-thirds of the estimated 1 million people displaced by Israeli airstrikes – and 22 hospitals to expedite distribution.
Since Biden took office, total yearly U.S. assistance for the Palestinian territories has totaled around $150 million, restored from just $8 million in 2020 under the Trump administration. During the Obama administration, however, the U.S. was providing more aid to the territories than it is now, with $1 billion disbursed in the 2013 fiscal year.
The United Nations Relief and Works Agency is a U.N. organization. It’s not run by Hamas, unlike, for instance, the Gaza Ministry of Health. However, Hamas has frequently undermined UNRWA’s efforts and diverted international aid for military purposes.
Humanitarian aid professionals regularly have to contend with these trade-offs when deciding to what extent they can work with governments and local authorities that commit violent acts. They need to do so in exchange for the access required to help civilians under their control.
Similarly, Biden has had to make concessions to Israel while brokering for the freedom to send humanitarian aid to Gaza. For example, he has assured Israel that if any of the aid is diverted by Hamas, the operation will cease.
This promise may have been politically necessary. But if Biden already believes Hamas to be uncaring about civilian welfare, he may not expect the group to refrain from taking what they can.
Security best practices
What can be done to protect the security of humanitarian aid operations that take place in the midst of dangerous conflicts?
Under International Humanitarian Law, local authorities have the primary responsibility for ensuring the delivery of aid – even when they aren’t carrying out that task. To increase the chances that the local authorities will not attack them, aid groups can give “humanitarian notification” and voluntarily alert the local government as to where they will be operating.
Under the current agreement between the U.S., Israel and Egypt, the convoy will raise the U.N. flag. International inspectors will make sure no weapons are on board the vehicles before crossing over from Arish, Egypt, to Rafah, a city located on the Gaza Strip’s border with Egypt.
The aid convoy will likely cross without militarized security. This puts it at some danger of diversion once inside Gaza. But whether the aid convoy is attacked, seized or left alone, the Biden administration will have demonstrated its willingness to attempt a humanitarian relief operation. In this sense, a relatively small first convoy bearing water, medical supplies and food, among other items, serves as a test balloon for a sustained operation to follow soon after.
In that case, the presence of U.S. armed forces might provoke attacks on Gaza-bound aid convoys by Hamas and Islamic jihad fighters that otherwise would not have occurred. Combined with the mobilization of two U.S. Navy carrier groups in the eastern Mediterranean Sea, I’d be concerned that such a move might also stoke regional anger. It would undermine the Biden administration’s attempts to cool the situation.
On U.N.-approved missions, aid delivery may be secured by third-party peacekeepers – meaning, in this case, personnel who are neither Israeli nor Palestinian – with the U.N. Security Council’s blessing. In this case, tragically, it’s unlikely that such a resolution could conceivably pass such a vote, much less quickly enough to make a difference.
Topher L. McDougal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
“The majority of wound infections often manifest themselves immediately postoperatively, so close followup should take place […]”
Credit: 2023 Barbarewicz et al.
“The majority of wound infections often manifest themselves immediately postoperatively, so close followup should take place […]”
BUFFALO, NY- October 20, 2023 – A new research perspective was published in Oncoscience (Volume 10) on October 4, 2023, entitled, “Diagnosis and management of postoperative wound infections in the head and neck region.”
In everyday clinical practice at a department for oral and maxillofacial surgery, a large number of surgical procedures in the head and neck region take place under both outpatient and inpatient conditions. The basis of every surgical intervention is the patient’s consent to the respective procedure. Particular attention is drawn to the general and operation-specific risks.
Particularly in the case of soft tissue procedures in the facial region, bleeding, secondary bleeding, scarring and infection of the surgical area are among the most common complications/risks, depending on the respective procedure. In their new perspective, researchers Filip Barbarewicz, Kai-Olaf Henkel and Florian Dudde from Army Hospital Hamburg in Germany discuss the diagnosis and management of postoperative infections in the head and neck region.
“In order to minimize the wound infections/surgical site infections, aseptic operating conditions with maximum sterility are required.”
Furthermore, depending on the extent of the surgical procedure and the patient‘s previous illnesses, peri- and/or postoperative antibiotics should be considered in order to avoid postoperative surgical site infection. Abscesses, cellulitis, phlegmone and (depending on the location of the procedure) empyema are among the most common postoperative infections in the respective surgical area. The main pathogens of these infections are staphylococci, although mixed (germ) patterns are also possible.
“Risk factors for the development of a postoperative surgical site infection include, in particular, increased age, smoking, multiple comorbidities and/or systemic diseases (e.g., diabetes mellitus type II) as well as congenital and/ or acquired immune deficiency [10, 11].”
Continue reading the paper: DOI:https://doi.org/10.18632/oncoscience.589
Correspondence to: Florian Dudde
Keywords: surgical site infection, head and neck surgery
Oncoscience is a peer-reviewed, open-access, traditional journal covering the rapidly growing field of cancer research, especially emergent topics not currently covered by other journals. This journal has a special mission: Freeing oncology from publication cost. It is free for the readers and the authors.
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G77 Nations, China, Push Back On U.S. "Loss And Damage" Climate Fund In Days Leading Up To UN Summit
As was the case in primary school with bringing in presents, make sure you bring enough for the rest of the class, otherwise people get ornery...
This age old rule looks like it could be rearing its head in the days leading up to the UN COP 28 climate summit, set to take place in the United Arab Emirates in about six weeks.
At the prior UN COP 27, which took place in Egypt last year, the U.S. pushed an idea for a new World Bank "loss and damage" climate slush fund to help poor countries with climate change. But the G77 nations plus China, including many developing countries, are pushing back on the idea, according to a new report from the Financial Times.
The goal was to arrange how the fund would operate and where the money would come from for the "particularly vulnerable" nations who would have access to it prior to the upcoming summit in UAE.
But as FT notes, Pedro Luis Pedroso Cuesta, the Cuban chair of the G77 plus China group, has said that talks about these details were instead "deadlocked" over issues of - you guessed it - where the money is going and the governance of the fund.
The U.S.'s proposal for the fund to be governed by the World Bank has been rejected by the G77 after "extensive" discussions, the report says. Cuesta has said that the nations seek to have the fund managed elsewhere, but that the U.S. wasn't open to such arrangements.
Cuesta said: “We have been confronted with an elephant in the room, and that elephant is the US. We have been faced with a very closed position that it is [the World Bank] or nothing.”
Christina Chan, a senior adviser to US climate envoy John Kerry, responded: “We have been working diligently at every turn to address concerns, problem-solve, and find landing zones.” She said the U.S. has been "clear and consistent" in their messaging on the need for the fund.
Cuesta contends that the World Bank, known for lending to less affluent nations, lacks a "climate culture" and often delays decision-making, hindering quick responses to climate emergencies like Pakistan's recent severe flooding.
The G77 coalition voiced concerns about the World Bank's legal framework potentially limiting the fund's ability to accept diverse funding sources like philanthropic donations or to access capital markets.
With just days left before the UN COP 28 summit, the World Bank insists that combating climate change is integral to its mission and vows to collaborate on structuring the fund.