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(Bloomberg) -- Profit growth at US firms is likely to beat that of their European peers by a wide margin this earnings season, JPMorgan Chase & Co. strategists predict.
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It’s a case of the bar being set much lower for S&P 500 companies, according to strategist Mislav Matejka. Analysts reduced their projections “meaningfully” for the US benchmark going into the season, despite the economy showing resilient growth, he said.
Meanwhile, expectations in Europe for cyclical and defensive shares were set at a “more punchy” level, and could be tougher for firms to meet, the strategist said.
“This puts Europe more at risk, especially when comparing the pace of activity momentum,” Matejka wrote in a note.
It’s more bad news for European stocks, after one of the worst years for the region’s equities relative to the US.
The Stoxx 600 Index underperformed the S&P 500 by over 17 percentage points in local currency terms last year, its second-worst relative showing since the benchmark was created in 1998, according to data compiled by Bloomberg. Robust US economic growth and soaring appetite for a clutch of tech heavyweights drove the divergence.
With Donald Trump set to be sworn in on Monday as the 47th US president, investors are struggling to predict what his America-first policies and proposals for sweeping global tariffs will mean for stocks in 2025.
Matejka — whose deeply bearish view on European stocks last year nonetheless didn’t pan out — said the median US analyst estimate calls for 3% growth in fourth-quarter earnings versus a year earlier. In Europe, the median forecast signals a 5% and 9% increase for cyclicals and defensives, respectively, he said.
Profit Snapshot
Early results have brought some high-profile beats and misses in both regions.
Shares of big US banks including JPMorgan, Goldman Sachs Group Inc. and Wells Fargo & Co. all gained following better-than-expected reports, while drugmaker Eli Lilly & Co. tumbled after an underwhelming revenue forecast.
Earnings growth is currently at a better-than-expected level of 7.7%, with companies accounting for almost one-tenth of the S&P’s market cap having so far reported, according to data compiled by Bloomberg Intelligence.