JPMorgan Chase & Co. strategists forecast that US companies will outperform their European counterparts in profit growth this earnings season, with expectations significantly lower for S&P 500 firms, making it easier for them to exceed forecasts. According to strategist Mislav Matejka, analysts revised their projections “meaningfully” for the US benchmark heading into the season, despite the economy’s resilient growth.
In contrast, expectations for European cyclical and defensive shares were set at higher levels, which could prove challenging for companies to meet. “This puts Europe more at risk, especially when comparing the pace of activity momentum,” Matejka wrote in a note to investors.
The outlook for European stocks remains grim after one of the region’s worst performances in recent years. The Stoxx 600 Index lagged the S&P 500 by more than 17 percentage points in local currency terms in 2024, marking its second-worst relative performance since its inception in 1998, according to Bloomberg data. The divergence was driven by robust US economic growth and surging demand for tech giants.
With Donald Trump poised to take office for a second term as the 47th US president, investors are grappling with uncertainty about his “America-first” policies and proposed global tariffs. Matejka, whose bearish stance on European stocks last year did not materialize, noted that analysts are forecasting a 3% growth in US earnings for the fourth quarter compared to a year ago. In Europe, forecasts predict a 5% increase for cyclical stocks and a 9% rise for defensive stocks.
Profit Results
Early earnings reports from both regions have been a mixed bag, with some major US banks like JPMorgan, Goldman Sachs, and Wells Fargo beating expectations. On the other hand, Eli Lilly & Co. saw its shares tumble after issuing a disappointing revenue forecast.
US earnings growth is currently ahead of expectations at 7.7%, with nearly 10% of S&P 500 companies reporting results, according to Bloomberg Intelligence. In Europe, however, there have been some disappointments, including BP and Taylor Wimpey, although Swiss luxury giant Richemont saw its stock reach a record high after posting strong quarterly sales.
JPMorgan’s Matejka cautioned that a “challenging” outlook for stocks exposed to China’s uneven recovery would likely keep European earnings lagging behind the US throughout 2025. Citigroup’s Scott Chronert also anticipates a “larger than average” profit beat from S&P 500 firms for the fourth quarter.
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