A couple of weeks ago we looked at US Tech vs non-tech earnings… this time we are looking at US vs non-US earnings — the results are surprisingly unsurprising, but very important for global investors to take note.
The first thing that stands out is the trends: US earnings have been trending higher throughout the last 30-years, but rest-of-world earnings have been traveling through a highly cyclical range over the past 15-years.
More recently, global earnings have been declining (makes sense given the economic slowdown and challenging economic conditions in China/EM and Europe).
This stands in contrast to the US which has seen a strong, albeit narrow (tech-driven) cyclical upturn in earnings off the 2022 lows.
A natural question would be: will the gap between them close or narrow?
Here’s a couple of points to ponder:
Trump: tax cuts if broad and rapidly implemented would lift the blue line, tariffs would have mixed effects but likely present more of a headwind to the black line.
Cycle: Europe has been more aggressive with rate cuts and China is ramping up stimulus, if these major economies can reaccelerate out of slowdown it will boost the black line.
AI Hype Cycle: the AI boom if it follows the classic Gartner Hype Cycle will eventually make a journey through the trough of disillusionment, this will take some steam out of US/Tech earnings.
Overall I would say consensus is (based on relative valuations) that the blue line continues to the sky, while the black line will languish in permanent stagnation. To me that says the market as a whole doesn’t even contemplate the prospect of any narrowing of the gap or changes in this chart — and to me that says risk (US) + opportunity (global) [check out the bonus chart below for another angle on this].
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