Key Points
- The S&P 500 is underperforming its global peers, trailing the MSCI World Index (ex-US) by 13% in 2025.
- U.S. earnings growth advantage narrowed from 13% to 9%, weakening investor confidence.
- Profit guidance momentum hit its lowest level since 2010, reflecting growing corporate caution.
- Valuations remain high, with the S&P 500 trading at 22x projected earnings, 19% above the average.
Despite a strong six-week rebound, U.S. stocks remain underperformers in the global equity landscape for 2025. Analysts at Bloomberg Intelligence (BI) caution that the S&P 500’s continued rise hinges on the ability of American companies to reignite earnings growth, a factor historically critical to U.S. stock outperformance.
According to BI’s Nathaniel Welnhofer, the S&P 500 has trailed a composite of 22 developed markets since late 2024. The last time U.S. earnings lagged global peers this significantly was in 2017. The U.S. earnings advantage—once 13% over other developed markets—has now shrunk to 9% and could deteriorate further amid rising operational costs and ongoing tariff impacts.
While the S&P 500 has bounced back by nearly 19% from its April low, it still sits about 3% below its pre-tariff high from February. In contrast, the MSCI World Index (ex-US) hit a new record, outperforming the S&P 500 by approximately 13 percentage points this year.
Trade policy uncertainty — especially under the Trump administration — continues to cloud corporate outlooks. Executives are struggling to forecast business performance, citing rising costs, weak consumer sentiment, and declining business confidence due to tariffs. This has impacted corporate guidance significantly.
In fact, profit guidance momentum — a key BI metric tracking upgrades versus downgrades — has fallen to its lowest level since at least 2010, suggesting growing pessimism among U.S. companies.
Yet, investors appear surprisingly optimistic. The S&P 500 now trades at 22 times forward earnings, a 19% premium over its long-term average. This disconnect between market valuation and corporate sentiment has raised concern among strategists.
