Earnings Season: US Firms Poised to Outshine European Peers
As the earnings season unfolds, a significant gap is expected to emerge between the profit growth of US firms and their European counterparts. According to JPMorgan Chase & Co. strategists, US companies are likely to outperform their European peers by a substantial margin.
Lower Expectations in the US
One key factor contributing to this disparity is the lower bar set for S&P 500 companies. Analysts have reduced their projections for the US benchmark, despite the economy’s resilient growth. This decrease in expectations creates a more favorable environment for US firms to exceed forecasts.
Higher Hurdles in Europe
In contrast, expectations for European cyclical and defensive shares remain high, making it more challenging for firms to meet them. This elevated bar, combined with the region’s slower economic growth, puts European stocks at a greater risk of underperformance.
A Repeat of Last Year’s Trend?
This prediction echoes last year’s trend, where the Stoxx 600 Index underperformed the S&P 500 by over 17 percentage points in local currency terms. The US economy’s robust growth and strong demand for tech heavyweights drove this divergence.
Uncertainty Surrounds Trump’s Policies
As Donald Trump prepares to take office, investors are struggling to predict the impact of his America-first policies and proposed global tariffs on stocks in 2025. This uncertainty adds another layer of complexity to the earnings season.
Early Results: Beats and Misses
Early reports have brought a mix of high-profile beats and misses in both regions. US banks, such as JPMorgan and Goldman Sachs, have seen their shares rise following better-than-expected reports, while drugmaker Eli Lilly & Co. has struggled with an underwhelming revenue forecast. In Europe, companies like BP Plc and Taylor Wimpey Plc have disappointed, while Richemont SA has hit a record high after reporting stellar quarterly sales.
Challenges Ahead for European Stocks
JPMorgan’s Mislav Matejka predicts that a “challenging” outlook for stocks exposed to China’s uneven recovery will continue to weigh on European earnings throughout 2025. This, combined with the region’s slower economic growth, may lead to a wider gap between US and European profit growth.
A Strong Start for US Earnings
Despite the uncertainty, early results suggest that US earnings growth is currently exceeding expectations, with companies accounting for almost one-tenth of the S&P’s market cap having reported. This strong start may set the tone for the rest of the earnings season.
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