US growth rate stability and downgrading in Asia Pacific and EM, however…

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Chart 1 shows the status of regional consensus EPS growth forecasts for this year and next and the revisions (deltas) to the forecasts over the last month. The notable negative revisions have been in Asia Pacific and Emerging Markets. In terms of 2023 growth rate projections, the US is still predicted to deliver the highest growth rate among developed markets.

Chart 1: Regional consensus EPS growth forecasts

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…Growth rates might be giving a false sense of security

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Growth rate analysis does not provide insight into the status of the cycle as it simply measures the difference in EPS forecasts over two distinct time periods. If both periods see EPS decline by 10%, the growth rate remains the same. That is why EPS cycle analysis must be viewed via EPS trails that map the changes to calendar year forecasts over time. Chart 2 shows the EPS trails for the US and that after a period of stability both 2022 and 2023 EPS estimates have started to decline. The cycle seems to be deteriorating.

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Chart 2: US consensus EPS trails - starting to wobble

Most sectors have seen negative EPS revisions over the last month

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Chart 3 shows revisions to 2022 and 2023 EPS estimates versus the August market high for both the US and World ex US at a sector level. Energy remains the only sector to see positive revisions to 2022 and 2023 estimates for the US and World ex US.

Chart 3: A broad deterioration in sector EPS revisions

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While July saw a rally in most equity market regions (with the notable exception of China), the notable performance was delivered by US equities which outperformed the World ex US index by 5.8%.

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Chart 1: Comparing regional equity returns in July (USD, TR, %)

^{Source: Refinitiv, FactSet}

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Looking at 10-year annualized returns US equities have delivered 13%, more than twice the 5.9% return from the World ex US.

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Chart 2: Regional 10-year aggregate and annualized returns (USD, TR, %)

^{Source: Refinitiv, FactSet}

July produced an inflection in relative performance characteristics

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The rally in the US relative performance in July saw it rebound back to levels seen earlier this year. By contrast, Emerging Market relative performance weakened

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Chart 3: Relative performance charts for the US and Emerging Markets

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^{Source: Refinitiv, FactSet}

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Sector weighted performance contributions explain why the US outperformed

To identify the driver of US equity outperformance in July, it is useful to utilize sector weighted performance contribution analysis. Exhibit 4 compares the sector weighted contributions for the US and the World ex US indexes. The majority of the almost 6% outperformance of US equities in July was almost entirely due to the scale of contributions from the Technology and Consumer Discretionary sectors.

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Chart 4: Sector weighted performance contributions US and World ex US for July

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^{Source: Refinitiv, FactSet}

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^{Index 15303321 E0922}

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