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How does the outlook for corporate earnings in the United States compare to expectations internationally?

After a global slowdown in earnings last year, the recovery in U.S. corporate profitability is forecast to outpace the rest of the world through 2025.

Rosier domestic earning outlook chartWhile international companies experienced an outsized drop in earnings per share (EPS) relative to U.S.-based companies in 2023, forecasts for 2024 and 2025 aren’t calling for a rebound that eclipses the expected improvement in corporate profitability in the United States. Consensus expectations are calling for growth across all major markets, but the projected magnitude in the earnings recovery clearly favors domestic stocks.

Earnings per share (EPS) is one of the most common metrics for assessing a company’s profitability and plays a crucial role in establishing the perceived value of a company. In general, higher EPS correlates with higher stock prices, as investors are understandably willing to pay more for companies that are more profitable. Of course, valuations also matter, but stronger earnings growth should command a premium, as long as they can deliver on those higher expectations.

This year, analysts expect around 11% EPS growth for U.S. companies, as measured by the Russell 3000 index — nearly triple the expected 4% EPS growth for the rest of the world, as measured by the MSCI ACWI Ex-US index. That dynamic is expected to moderate but continue through 2025, assuming the expansion in the United States remains on track.

So, why does this matter? While we continue to believe that global exposure is an important part of constructing a broadly diversified equity portfolio, the bifurcation in the relative earnings outlook for U.S. and international markets over the next few years suggests that investors may benefit from having a larger allocation, or tilt, favoring U.S. stocks in a well-diversified portfolio.

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.

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