Since 2004, the S&P 500 has nearly quadrupled and MSCI is up 48%.
Accelerating earnings per share growth is a key driver of this trend, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. Over the past 17 years, S&P 500 returns have increased about 47 times as much as broader global market returns, according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute.
Earnings growth across S&P 500 companies is expected to increase by about 2% in 2023, 4.5% in 2022, and 11% in 2024. Despite remaining high, strong consumer spending and a solid job market are boosting the U.S. economy. Inflation and high interest rates make it more difficult to borrow money.
The U.S. economy has historically been much more consumer-driven than the economies of Europe and Asia, which has helped foster stable profit growth for U.S. companies over the long term. Share buybacks have also increased steadily over the past few decades, tending to inflate profits. Big tech companies also typically dominate the S&P 500, and their profits have distorted the benchmark index’s growth.
“The bottom line is that investors are paying for earnings growth, and developed markets (other than the U.S.) are not delivering on that,” Wren said in a note to investors. said.
A series of recent reports on employment, manufacturing, and spending reaffirmed that the U.S. economy remains strong. Inflation also remains high, adding further uncertainty to expectations for rate cuts this year.
Strong economic indicators bode well for investors who focus on earnings growth as a key investment consideration. The latest US government jobs report for March is a key example, with much better results than expected and contributing to the rise in stock prices.
“As long as consumer spending and corporate profits are more important to investors than how quickly and how many times the Fed cuts interest rates, stocks should be able to take advantage of this report,” said Chris Zaccarelli, chief investment officer at The Independent. “There is a possibility that it will rise as a result of this,” he said. Advisor Alliance.
The European Central Bank has also set its main interest rate at a record high, but has signaled it may start cutting rates in June. The Swiss National Bank made a surprise cut in its key interest rate in March. Such a move could boost confidence in Europe’s economy, which nearly stalled in 2023.
The Japanese market is poised for growth after Japan’s central bank raised interest rates for the first time since 2007 and ended its negative interest rate policy. According to JPMorgan’s market assessment, business confidence is improving, which could lead to increased business investment by Japanese companies that will benefit shareholders.
Meanwhile, sluggish consumer spending and sluggish income growth may continue to hamper China’s economy. Retail sales growth will slow in early 2024, and consumer sentiment remains weak.
“Despite some constructive progress at an aggregate level, China’s economic recovery remains uneven,” Alejandra Grindal, chief economist at Ned Davis Research, said in a note.
