Margin Resilience Is Key
This year U.S. equities have underperformed the rest of the world due largely to policy uncertainty. However, an important driver of U.S. equity outperformance over the longer term has been stronger earnings and profit margins relative to peers, and our view is these factors will continue to drive long-term U.S. exceptionalism.
3 mins Reading time
Published on 25 June 2025
U.S. equities have had a challenging first half of the year, underperforming the rest of the world. A primary cause of this underperformance has been higher policy uncertainty and concerns about the impact of higher tariffs on growth.
While policy uncertainty can impact short-term volatility and lead to temporary underperformance, what does this mean for returns over the long term? An important driver of long-term returns is earnings and profit margins, where the U.S. has continued to outperform. In fact, since 2010 margins increased 6.4% to 13.5% as compared to a 2.7% increase in Europe to 10.1%. The difference between U.S. and European margins is now 3.4%, near the highest in history.
Additionally, technology leadership and increased adoption of artificial intelligence (AI) across diverse industries will likely support the continued expansion of U.S. margins, allowing them to surpass the rest of the world. Considering the many ways AI can improve profit margins for businesses, we anticipate that 2025 S&P 500 earnings per share will come in at $260-$270, demonstrating positive growth of roughly 8% as strong earnings and margin expansion continue to drive U.S. exceptionalism into the future.
759433 Exp : 25 June 2026
YOU MIGHT ALSO LIKE
Although companies benefiting most directly from AI-related capital spending are the main drivers of higher earnings, strength is no longer confined to that group. Earnings across the broader market remain solid and are expected to grow more than 10% this year and next, suggesting the risk of concentrated market leadership may not be founded.
After sluggish job growth in 2025, investors are looking for signs that the labor market may be stabilizing. With consumer spending driving 70% of economic activity, an improving labor market is essential to sustaining economic growth.
Global equities have risen an annualized 11% since 2020 despite repeated shocks, as resilient growth and earnings have helped markets recover from periods of volatility. While the U.S.-Iran conflict poses near-term inflation and growth risks, markets remain constructive as earnings expectations continue to improve.
Rising earnings estimates continue to support equities despite geopolitical and macroeconomic uncertainty. With profit growth broadening across S&P 500 industries, resilient corporate earnings underpin our constructive outlook for the stock market.
