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Changechevron_rightThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional or accredited investors only. This material is provided for informational purposes only, should not be viewed as a current or past recommendation and is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Past results are not a reliable indicator of future results. Forward-looking statements should not be considered as guarantees or predictions of future events.
What to watch for in the near term?
The gap opening up between US and European nominal growth expectations is striking. Nominal year-on-year growth expectations for the fourth quarter of 2024 are 4.7% for the US, up from 3.8% in December, while they are only 2.8% year on year for the eurozone, down from 3.4% in December (based on Bloomberg consensus real growth and CPI expectations). If this decoupling trend, continues, it could have a number of implications:
From an equity market perspective, it seems February was all about Nvidia’s earnings and AI. After all, Nvidia gained US$277 billion in stock market value in just two days, more than the total market cap of Coca Cola. However, this point is somewhat misleading. While January’s strong equity performance was limited to the US and Japan, regional breadth clearly widened in February.
Emerging markets (4.4%), Japan (6.1%) and Continental Europe (4.1%) all outperformed US equities (3.7%), with only the UK (1.6%) underperforming the US. Japan is the best-performing region year to date, with Japanese equities more than making up for missing the fourth-quarter rally in European and US equities. Interestingly, despite the divergence in the earnings outlook, the Euro Stoxx 50 has outperformed the S&P 500 and the Nasdaq year to date.
Given the combination of decent performance in the first two months of this year and falling earnings, European equities are looking incrementally more expensive relative the US equities. This is also true on a sector-adjusted basis. While European equities still look cheap, albeit less so than a few months ago, emerging markets (EM) equities have de-rated further, meaning they are now looking cheaper than European equities on some measures. From a historical context, the US remains the most expensive region.
The consensus for global earnings-per-share growth in 2024 is around 8.7%, with the most optimistic expectations in emerging markets (around 16.6%) followed by Japan (around 12.3%) and the US (around 9.7%). The most pessimistic expectations are in Continental Europe and the UK (at around 3.4% and 2.6%, respectively). In aggregate, global earnings have been revised down over the last month, with more sell-side analysts downgrading 12-month forward earnings than upgrading (negative revisions). The weakest earnings revisions have been in Europe, while Japan and the US have experienced relatively strong earnings momentum.
Source for all data: DataStream as of 5 March 2024
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