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Start of a new normal for US earnings: Asset manager

U.S. investors will have to grow accustomed to lackluster company reporting seasons, according to one asset manager, who predicts success in the stock market will now rely on a change in strategy from previous years.

"Long gone are the times where you will see across the board good numbers," Pau Morilla-Giner, a partner and chief investment officer at London & Capital, told CNBC Wednesday.

"I think this is the beginning of a new normal for U.S. earnings."


IBM was just another big firm to disappoint with quarterly results this week, further cementing the idea that U.S. corporate earnings are about to get a whole lot murkier. S&P 500 companies are mostly beating on the bottom line, but 60 percent have seen weaker revenue growth, according to Thomson Reuters data. Profits are expected to decline by about 4 percent this quarter, according to the news agency.

Success for U.S. businesses now involves the tough task of increasing sales per share, growing profit margins and dealing with a country that has little slack in the labor market, Morilla-Giner told CNBC. Added to that, he said that the normalization of interest rates in the U.S. would mean companies continuing to disappoint on revenues and "really being very much hit."

"In the States, the winning strategy is going to be quite substantially different in the next two to three years, than it was in the last three years," he added.

"The last two, three years was all about players that were able to take advantage of cost, unit labor costs falling...now, the story is very different."

His new winning strategy involved looking for names that can take advantage of more consumer discretionary spending in the U.S., he explained.

Traders gather at the post that trades IBM on the floor of the New York Stock Exchange, Oct. 20, 2014.
Brendan McDermid | Reuters
Traders gather at the post that trades IBM on the floor of the New York Stock Exchange, Oct. 20, 2014.

The U.S. suffered a fairly directionless day of trading Tuesday with many blaming earnings reports. Jim Reid, head of global fundamental credit strategy at Deutsche Bank, calculated that 75 percent of the 20 S&P companies reporting on Tuesday managed to beat estimates for their earnings-per-share. However, he also highlighted that only 45 percent beat revenues estimates.

"This a strong reflection of the trend so far," he said in his research note on Wednesday morning.

"With the count now at 86, 74 percent have reported an earnings beat and just 44 percent a beat at the top line."