Investors have been warned to brace themselves for a weak third-quarter earnings season, but analysts have picked out some key sectors which may outperform.
So far, the European earnings season has been marked by disappointing performances from big consumer players like Nestle and Diageo. Analysts at UBS added to the gloom by predicting that earnings will be down around 5 percent on average for the year, the bottom range of their earlier forecasts, and predicting a "weak" earnings season for the third quarter.
This week, major companies including Unilever, Heineken, Pernod-Ricard, and BATS will update the market on how they performed in the third-quarter.
Monday's earnings in Europe were a mixed bag, with electronics company Philips getting a share price boost after better-than-expected earnings, but Swedish bank Svenska Handelsbanken disappointing.
The reporting season for the financial sector will kick off with numbers from Santander, at a time when there appears to be little tolerance for bad news amongst investors. Barclays' announcement that it would set aside 700 million pounds ($1.12 billion) more than expected to deal with PPI insurance mis-selling claims late Thursday was followed by a 4 percent share price drop Friday.
But miners are starting to look more attractive, as commodity prices rise, according to UBS, whose investors have just become net buyers of the sector after a steady sell-off this year.
Share buybacks and "well-supported dividends" will also be increasingly attractive for the rest of the year, they argued. Favored stocks include Swedish ball bearings company SKF, which has recently raised its prices and credit checker Experian, which is expected to benefit from an improving U.S. mortgage market. Anheuser-Busch Inbev is also expected to improve its U.S. results, as is telecoms company Vodafone, while materials company Holcim, which has raised pricing by around 6 percent in cement, was also tipped to outperform by UBS.
"If you're prepared to take that risk factor, particularly in Europe, equities look quite cheap," Lee Robertson, chief executive of Investment Quorum, told CNBC Monday.
One concern is that businesses have already made a lot of cuts over the course of the credit crisis, so there are few big cuts to be made.
"A lot of the cost cutting has happened. Unless they can get their order books filling up, they're going to struggle," said Robertson.
Despite hefty programs of liquidity injections on both sides of the Atlantic, economic performance continues to be sluggish at best in developed markets.
On the other hand, the corporate credit market has freed up, which should make the cost of business lower.
"Now we're in this slight hiatus we keep hitting tops and coming off them. It's a very indecisive market, so it's very difficult to call," Sean Corrigan, chief investment strategist, Diapason Commodities Management, said.
Disclosure: UBS advises Vodafone on issues including its planned share buyback. Stock ownership for individual analysts was not available, but analyst compensation is not related to their specific recommendations.
—By CNBC's Catherine Boyle; Follow Her on Twitter @cboylecnbc