Accelerating growth
This time, as they say, is different. Rather than decelerating, US earnings growth is expected to accelerate to 14% in 2025 from around 9% in 2024. Furthermore, US equities are at all-time highs. As a result, we cannot rely on past market reactions to interest rate cuts as a reliable guide for what will likely happen in 2025.
Looking at earnings, we are seeing a broadening out of earnings growth across the market. For the early part of 2024, the vast majority of US earnings growth was being driven by a handful of technology and internet companies, the so-called ‘Magnificent 7’ compiled of Amazon, Apple, Alphabet, Microsoft, Meta, Nvidia and Tesla. Since then, the proportion of companies delivering positive earnings has continued to climb while growth from the Magnificent 7 has declined.
This has contributed to the market rotation that we have seen away from these mega-cap technology giants since July. This is the result of their reduced relative appeal in an environment where lower interest rates are boosting the outlook in more cyclical sectors. We view this broadening out of earnings growth and performance as healthy for future equity returns.
