Global Earnings Will Hit Record Levels

Since last summer, I have written several blog posts on positive earnings from the S&P 500 constituents. We view accelerating earnings growth as a key driver of stock prices moving forward. Schwab’s Chief Global Investment Strategist Jeffrey Kleintop just wrote a very compelling post called “Earnings may be about to do something they’ve never done before.” Thanks to global growth picking up across virtually all regions, global earnings (measured by the MSCI All Country World Index) are expected to reach new heights in the near future. This is also bullish for the S&P 500 which generates roughly 44% of its revenues from outside the US.

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Interestingly, it was a different region that drove world earnings to the $30 level each time.

In 2008 it was Europe and the emerging markets that contributed the most to lifting global earnings to $30.

In 2011, the full rebound in the United States and emerging markets were the drivers back to $30.

In 2014, Japan’s rebound to its prior peak offset weakening emerging markets to reach $30 again.

In 2017, the current rebound to $30 was supported by a rise in all regions.

This time is notably different as all regions are back on the path of growth and this trend is expected to continue in 2018. The IMF forecasts global growth to accelerate next year. This should be good news for stocks and a reason to remain bullish for the short to intermediate term.