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A divergence in corporate earnings growth is underway. As corporate earnings growth in the U.S. is weakening, foreign equity earnings appear poised to accelerate.

 Earnings Outlook

While risks related to slowing growth, political uncertainty, and monetary policy were real, it’s now clear that a fair degree of negativity was priced into equities in December. The markets have done an about-face in the past six weeks, with major global equity markets up solidly thus far in 2019. We’ve seen both sides of the volatility coin in the past few months. So where do opportunities lie today?

In the near term, analysts expect a meaningful divergence in global earnings growth, with corporate earnings growth outside the U.S. projected to accelerate, even as U.S. earnings growth has decelerated and is expected to soften further in the coming quarters. Earnings for the S&P 500 are projected to grow by about 8% for 2019, while the comparable figure for the MSCI EAFE is pegged to accelerate to around 11%.

Although economic fundamentals have softened, global leading economic indicators have recently firmed and financial conditions have eased. Uncertainty around trade remains a concern, but recent developments suggest that progress is being made. A reduction in macro risks, attractive valuations, and a divergence in relative earnings growth favoring international equities should help to support returns.

There’s more to the story, which we discuss in the accompanying piece, but we believe that the opportunity within international equities still exists over a multi-year timeframe.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.