By John Wyn-Evans, Head of Investment Strategy at Investec Wealth &Investment

"The first quarter earnings season is coming to a close, and it has been a pretty positive one

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"In the past I have bemoaned the negative earnings momentum that was a feature of the corporate landscape. After all, we couldn't expect equities to keep going up forever without at least some support from earnings. This year, however, we have actually seen global earnings estimates rise so far. Aggregate data from Citigroup shows that annual earnings growth is forecast to be 14.6% in 2017, up from 13% at the start of the year, compared to a paltry 1.9% in 2016 after -1.9% in 2015, and 6% in 2014. It certainly helps that oil and other commodity prices have recovered, and also that banks are finding the interest rate environment slightly more accommodating, but the positive surprises have been broad based. 78% of US companies reported positive earnings surprises, and, perhaps more importantly, 64% reported better sales than expected. In Europe the figures were 65% for earnings surprises and 53% for sales (possibly helped by the weaker euro during the period). The Technology sector was very much at the forefront of the good news on both sides of the Atlantic.

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"Current estimates suggest around 11% earnings growth to look forward to in 2018, which, if achieved, should lend support to equities. Higher interest rates can undermine the valuation case for equities but as long as rising earnings offset any devaluation equities, it remains a reasonable asset class to be invested in. Most recent larger market setbacks have been triggered by growth fears. It would be reckless to suggest that there are no risks to the economic momentum, but it's hard to see a global recession developing without the intervention of a big external force or a catastrophic policy error."

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