The End of the Leading Myth? The Earnings Engine of U.S. Stocks Urgently Needs to Restart

According to the Zhitong Finance APP, after experiencing a rapid rebound over six weeks, the performance of U.S. stocks this year still lags behind that of global markets. Bloomberg Intelligence analysts state that to maintain the upward trend and regain its usual leading position, the earnings engine of U.S. companies needs to accelerate again. According to BI's Nathaniel Welnhofer, since the end of last year, the performance of the S&P 500 index has underperformed a benchmark index covering 22 non-U.S. developed markets, due to a narrowing relative advantage in U.S. corporate earnings growth. The last time this phenomenon occurred was in 2017, when the earnings growth of the U.S. stock market benchmark lagged behind overseas markets. Welnhofer stated, "Historical data shows that the superior performance of the U.S. stock market relative to international markets has always depended on the ability of U.S. companies to achieve faster earnings growth, and this dynamic shift may challenge the notion of American exceptionalism." BI's data shows that in the 12 months ending last December, U.S. corporate earnings growth was 13 percentage points ahead of other developed markets, but this advantage has since narrowed to 9%, and as tariff policies continue to erode corporate profits, this advantage may further decline. So far this year, the performance of the S&P 500 index has lagged the MSCI global index, excluding the U.S., by about 13 percentage points. Although the U.S. stock market has benefited from the Trump administration's easing rhetoric on trade issues—especially the temporary truce with China—the rebound of U.S. stocks is still weaker than that of other major markets. The S&P 500 index is still 3% below its historical high on February 19, while the MSCI non-U.S. index reached a new high this Tuesday. Even though the S&P 500 index has rebounded about 19% from its low on April 8, some Wall Street professionals remain skeptical about the sustainability of this rally. Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, stated that the V-shaped recovery of U.S. stocks seems counterintuitive in the context of slowing earnings growth. Keith Buchanan, Senior Portfolio Manager at GLOBALT Investments, stated, "The earnings environment is crucial for the sustainability of recent trends." He pointed out that due to the constantly changing trade policies, companies are forced to blindly navigate an evolving business environment, which leaves them lacking confidence in making business decisions or providing performance guidance. In the latest earnings season, U.S. corporate executives generally issued warnings about the outlook, attributing rising costs, weak consumer confidence, and low business confidence to the tariffs imposed by the Trump administration on global trading partners. An analysis by BI equity strategists Gina Martin Adams and Wendy Soong shows that the so-called earnings guidance momentum, which measures the proportion of companies in the S&P 500 index that have raised earnings expectations compared to those that maintain or lower expectations, has fallen to its lowest level since at least 2010 However, from a valuation perspective, investors seem to have more confidence in corporate earnings. The current dynamic price-to-earnings ratio of the S&P 500 is 22 times, which is 19% higher than the long-term average. Buchanan stated, "We believe that the optimistic sentiment reflected in market valuations stands in stark contrast to the cautious statements from companies, and this divergence must eventually be corrected."