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European equities lost ground in October despite solid third-quarter results for most companies across the region.
Europe's benchmark Stoxx 600 index fell 6 percent for the month, despite a strong 1.7 percent rally on the final session of trade.
This comes as revenue and earnings-per-share (an important metric used by traders to gauge a company's value) growth remained healthy and most companies in Europe have maintained their full-year guidance to the market. However, investor sentiment has remained fragile.
"Slower Chinese demand for euro zone exports, escalation of trade tensions, and Italy have weighed on European growth and sentiment. There is scope for recovery, but something would need to change," said Nandini Ramakrishnan, a global market strategist at J.P. Morgan Asset Management, said in emailed research to CNBC.
Cyclical sectors, which are affected by the ups and downs of the global economy, have sold off materially, while defensive stocks have generally outperformed.
As of October 30, 125 companies on the Stoxx 600 index reported earnings for the third quarter, according to I/B/E/S data from Refinitiv. Of these, 48 percent beat market expectations. In a typical quarter, 50 percent of companies beat estimates and 41 percent miss. The estimated earnings growth rate for European stocks for this period is 14.2 percent with six of the 10 sectors in the index poised to see an improvement in earnings, relative to one year earlier.
Technology, health care, and consumer cyclicals have seen the highest number of earnings beats with 92 percent, 64 percent and 62 percent respectively, surpassing expectations.
Meanwhile, telecommunications and basic materials saw the highest number of misses with 71 percent and 57 percent companies in each sector coming up short, respectively.
On the revenue side, of the 140 companies on the Stoxx 600 which have reported revenues, 51.4 percent beat analyst expectations compared to 54 percent for a typical quarter.
In terms of sentiment, the autos sector has emerged as one of the most unloved in Europe and the third quarter has reinforced concerns around the negative impact of specific regulatory changes in the industry and the U.S.-China trade conflict.
The introduction of new emissions standards contributed to a decline in automotive sales in Europe in September, impacting third-quarter performance, while carmakers flagged a slowdown in China as a major risk to their business moving forward.
Volkswagen noted that: "The trade dispute between China and the United States dampened business and consumer confidence, among other things, and brought about a significant market decline in the third quarter."
Daimler warned that: "The greatest risk for the positive outlook for the global economy at present is the further escalation of the current trade-policy conflict between the United States and China."
The impact of these challenges is being felt in sectors outside the automotive space. BASF, the world's largest chemical producer, highlighted that growth in industrial production fell short of their expectations in the third quarter, primarily due to developments in the automotive industry.
Deutsche Bank strategist, Tom Pearce, highlights that 2019 earnings revisions for Europe have turned negative for the first time since September 2017.
The consensus is now forecasting a 9.3 percent year-on-year EPS growth for 2019, versus 9.6 percent growth projected one month earlier. Analysts are expecting a deceleration in 2020 to 8.1 percent.
Still, while earnings momentum is indeed fading, EPS growth in Europe remains positive.