Equities

International Earnings Growth Outpaces U.S.

Over the past year, analysts’ average earnings growth forecasts have swung in favor of international equity markets. Through late July, analysts expect companies in the MSCI ACWI ex-US Index to grow earnings by about 11% in 2025, compared to the expected 9% growth for companies in the S&P 500 Index1. This marks a reversal from the end of 2024, when earnings growth expectations for US equities were higher than international equities. 

Several possible factors are likely contributing to the stronger international earnings outlook. In Europe, moderating inflation and expectations for interest rate cuts may have lifted sentiment, while Japan’s corporate governance reforms, as well as a weaker yen, are supporting export-driven profits. 

This year’s market performance closely aligns with the change in earnings expectations – the MSCI EAFE Index has gained roughly 18% year-to-date (YTD), while the S&P 500 saw gains of roughly 9%2 YTD with majority of this performance stemming from a concentrated, narrow group of mega-cap tech stocks. International Value’s outperformance further highlights the improving relative strength of value-oriented international equities. 

The combination of stronger forecasted earnings growth, broad-based performance leadership, and relatively attractive valuations may present a timely case for diversifying beyond US borders and into international equities.

  1. Source: FactSet; data as of July 31, 2025
  2. Source: FactSet; data as of July 31, 2025 

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A principal risk of investing in value stocks is that the price of the security may not approach its anticipated value or may decline in value. “Value” investments, as a category, or entire industries or sectors associated with such investments, may lose favor with investors as compared to those that are more “growth” oriented.

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MSCI ACWI Index (Net) measures the performance of large cap and midcap equities across developed markets and emerging markets. A net-return index tracks price changes and reinvestment of distribution income net of withholding taxes.

MSCI EAFE Index (Net) measures the performance of large and midcap equities across developed markets countries around the world excluding the US and Canada. A net-return index tracks price changes and reinvestment of distribution income net of withholding taxes.

MSCI EAFE Value Index (Net) measures the performance of large and midcap equities exhibiting overall value style characteristics across developed markets excluding the US and Canada. Value investment style characteristics for index construction are defined using book value to price, 12-month forward earnings to price and dividend yield. A net-return index tracks price changes and reinvestment of distribution income net of withholding taxes.

S&P 500 Index (Gross/Total) measures the performance of 500 of the top companies in the leading industries of the US economy and is widely recognized as a proxy for the US market as a whole. A total-return index tracks price changes and reinvestment of distribution income.

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