US Stocks Need Earnings Boost to Regain Edge Over Global Peers

US stocks are underperforming global peers despite a recent rebound, according to Bloomberg Intelligence analysts. The S&P 500 has lagged behind a developed markets index since late last year due to a narrowing of US earnings growth relative to the rest of the world; a trend that analysts believe must reverse for US equities to regain their leadership position, as was the case in 2017 when a similar earnings growth lag occurred.

Analysis

Despite a significant rebound over the past six weeks, US stocks, as represented by the S&P 500 Index, continue to underperform a benchmark of 22 developed markets outside the US since late last year. This underperformance, according to Bloomberg Intelligence analysts, is primarily attributed to the narrowing pace of US earnings growth relative to its global counterparts. This situation mirrors a similar dynamic observed in 2017 when the US stock benchmark's earnings growth also lagged behind overseas peers. Consequently, for US equities to sustain their recent rally and reclaim their typical leadership position in global markets, a substantial re-acceleration of Corporate America's profit engine is deemed essential. The current market sentiment reflects this cautious outlook, underscoring the dependency on forthcoming earnings reports.

Key Decisions for Investors

• Investors should closely monitor upcoming US corporate earnings seasons, as a significant improvement in profit growth is critical for the S&P 500 to outperform global peers.
• Consider re-evaluating portfolio allocations between US and international equities, particularly if US earnings growth continues to lag or fails to meet heightened expectations.
• Maintain a degree of caution regarding sustained US market leadership until there is clear evidence of a robust and broad-based earnings recovery across Corporate America.