The eurozone’s economy has been outpacing the U.S. since 2016, but its corporate profits are now further behind America’s than they’ve ever been, The Wall Street Journal reports.
Strong economic growth in the eurozone last year inspired investors to spend billions on European exchange traded funds, and European earnings have increased since then, just not as fast as the U.S.
The gap in earnings per share between MSCI’s USA and Europe indexes has grown to a 30-year high, driven by a stronger euro, U.S. tax cuts and high-speed growth from America’s tech giants, says Mislav Matejka, an equity strategist at JPMorgan.
Some investors expect earnings in Europe to catch up in the next several months. The euro has fallen roughly 2% against the dollar so far this month, reassuring investors that the worst hit to earnings has passed.
Despite the gap, European equity indexes have performed about the same as those in the U.S. this year. The Stoxx Europe 600 and S&P 500 are both up about 2% for 2018 and the Dow Jones Industrial Average is up around 1%.
Analysts forecast a slow down in U.S. corporate earnings growth in 2019 and in 2020 as the impact of tax cuts fades out of comparisons.
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