US Companies Set to Outpace European Peers in Earnings Growth
JPMorgan Chase & Co. strategists anticipate a significant margin of victory for US firms in profit growth compared to their European counterparts during the current earnings season. This disparity stems from a lower threshold for S&P 500 companies, with analysts notably lowering their projections for the US benchmark. Conversely, expectations for European cyclical and defensive shares remain elevated, posing a greater challenge for firms to meet.
The strategist, Mislav Matejka, emphasized this risk for Europe, highlighting the potential disadvantage in activity momentum compared to the US. The news comes on the heels of a dismal year for European equities relative to their US counterparts. The Stoxx 600 Index underperformed the S&P 500 by over 17 percentage points in 2024, marking its second-worst relative showing since its inception in 1998.
Robust US economic growth and the surge in popularity of tech giants fueled this divergence. With President Donald Trump's inauguration approaching, investors are grappling with the implications of his America-first policies and proposed global tariffs on stocks in 2025.
Matejka, despite his pessimistic outlook on European stocks last year, noted that the median US analyst estimate projects 3% growth in fourth-quarter earnings year-over-year. In Europe, the median forecast indicates a 5% and 9% increase for cyclicals and defensives, respectively.
Initial results have revealed notable beats and misses in both regions. US bank shares, including JPMorgan, Goldman Sachs Group Inc., and Wells Fargo & Co., rallied after exceeding expectations. Eli Lilly & Co., on the other hand, declined following a disappointing revenue forecast.
Earnings growth currently stands at a surprising 7.7%, with companies representing nearly 10% of the S&P's market cap having reported thus far.
In contrast, Europe has experienced disappointments from BP Plc and Taylor Wimpey Plc. However, Swiss luxury giant Richemont SA achieved record highs on the heels of exceptional quarterly sales.
JPMorgan's Matejka anticipates a challenging outlook for stocks connected to China's inconsistent recovery, projecting that European earnings will continue to lag behind the US throughout 2025. Scott Chronert of Citigroup Inc. also anticipates an unusually strong earnings surprise for S&P 500 firms in the fourth quarter.