The link I want to highlight today is on the relationship between the slowdown in growth globally and US multinational earnings. Estimates for earnings growth have started to erode already because it is now clear that US firms cannot make up for the slow domestic growth with outsized growth abroad. Not only is Europe in recession but other countries are in a slowdown mode as well. The result is an erosion of earnings growth at companies in the S&P500. This effect is mostly about top line growth. However, if you combine this with my anticipated margin compression issue, you have the makings of a cyclical bear market (in a larger secular bear).
This is why I still think that US equities might underperform their European brethren, one of my predictions from early in the year. Yea...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.