RBC Capital Markets is bullish on US stocks.
“Non-U.S. markets are expected to see slightly faster earnings growth over the coming year,” RBC strategist Jonathan Golub wrote in a note Monday.
“However, developed ex-U.S. has missed lofty expectations by a wide margin in each of the past four years.”
Also, expectations for earnings growth in Europe have been sharply revised downward this year.
Here’s why US stocks will outperform in the coming years, according to Golub:
- US economic growth, as measured by GDP, has outpaced other G10 economies since the end of the recession and is forecast to keep doing so, as the chart below shows.
- US companies have been more likely to meet their forecasts for earnings growth than other developed countries over the past several years.
- US stocks have more exposure to faster-growing sectors like technology and health care.
- Higher US yields support higher valuations for stocks.
- Price-to-earnings ratios tend to move in tandem with the dollar, and will climb if the dollar rally continues.
- Adjusting for sector mix, US stocks are not expensive versus the rest of the world.