The power of earnings
US equities have outperformed all of their counterparts in other regions over the last ten years. While that has definitely made them expensive compared to equities elsewhere in the world, (for example, PE ratio expansion or contraction is an important explanatory factor for equity returns), fundamentals should not be overlooked. S&P 500 Index earnings per share are up roughly 65% from their peak just before the start of the Great Financial Crisis. For European companies, however, earnings growth is far less impressive. Earnings per share are still down 25% from their 2007 peak. US technology stocks have been, by far, the largest contributor to US corporate earnings. This is not the case in Europe where the sector is relatively small. There, the sovereign debt crisis wiped out massive amounts of capital in the stocks of financial institutions, traditionally representing Europe’s largest sector. That having been said, increased bank buffers, significant operational leverage and relatively low return on equity imply there is room for improvement.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
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