Will Earnings Continue to Drive Markets Higher?
Our chart shows the earnings growth rates implicit in the following indices: S&P 500, Euro Stoxx 50, MSCI World. In the US, earnings growth of 17.7% is necessary to justify the current level of the S&P 500 index. In the case of Europe, this number is 11.3% for the Eurostoxx index, while for the MSCI World index we would need to see earnings growth of 14.2%.
These numbers are high by historical standards but they are not in uncharted territories. For example, in the US in 2018, earnings grew at a rate in excess of 25%, helped in part by the fiscal cut. With GDP growth not currently at risk and wage growth at moderate levels, we could see the current equity rally continue, which would see these implied earnings growth levels also getting higher.
Source: Unigestion, Bloomberg. Data as at 1 July 2019.
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