JPMorgan Strategists: US Profits to Outshine Europe This Season
Monday, Jan 20, 2025 5:03 am ET
4min read As the earnings season kicks off, investors are eagerly awaiting the performance of companies across various sectors. JPMorgan strategists have recently shared their insights, predicting that US profits will outshine those of their European counterparts this quarter. Let's delve into the key factors driving this outlook and explore the implications for investors.
JPMorgan strategists anticipate that the US will continue to lead in earnings growth, with a projected increase of 6.6% compared to the rest of the world's 4.5% (Europe at 0.2%). This growth is driven by strong revenue growth and a high percentage of firms reporting positive revenue growth. The US is also projected to have stronger earnings growth in each of the next four quarters, on average six percentage points higher than the rest of the world. As a result, 2025 full-year estimates are also expected to be greater for the US.
However, the strategists caution that European earnings growth is expected to underperform their US counterparts in the upcoming quarter. The Euro Stoxx 50 index (SX5E) is projected to remain in a consolidation phase since March 2024 and will be unable to advance in absolute terms for a while longer. As a result, JPMorgan remains underweight European equities against the US.
Several key factors contribute to the divergence in earnings performance between the US and Europe:
1. Weak Eurozone Manufacturing PMIs: Eurozone manufacturing PMIs remain weak, signaling sluggish industrial activity. This is in contrast to the US, where manufacturing activity has been more robust.
2. Trade Uncertainty: The uncertainty surrounding international trade, particularly the impact of tariffs and disrupted supply chains, is likely to dampen international business confidence in Europe. This is unlike the US, which has been relatively insulated from these effects.
3. Weakening Topline Growth: The weakening topline growth in Europe is a constraint for future earnings acceleration. JPMorgan highlights that 2025 global EPS forecasts, projecting a 6% profit growth re-acceleration, are at risk of downgrades, especially outside the US. The eurozone's projected 2025 earnings-per-share (EPS) growth of 10% is seen as "too optimistic" given the current environment.
4. Strong US Dollar and China's Underwhelming Stimulus: The strong US dollar and China's underwhelming stimulus measures have disproportionately affected sectors with high eurozone exposure, such as autos, luxury goods, semiconductors, and chemicals. This is another factor contributing to the divergence in earnings performance between the US and Europe.
In conclusion, JPMorgan strategists anticipate that US profits will outshine those of their European counterparts this season, driven by strong revenue growth and robust manufacturing activity. However, investors should remain cautious about the potential risks and challenges facing European companies, as well as the broader global economy. By staying informed and diversifying their portfolios, investors can position themselves to capitalize on the opportunities presented by the earnings season and beyond.
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