For this week’s indicator, we’re going global. U.S. stocks have been strong this year, but what about the rest of the world? What does the data say about the broader global market?
To answer that, we can turn to a measure called Earnings Growth Breadth. This indicator tracks how many global companies are seeing their earnings improve. Specifically, it looks at the trailing 12-month earnings per share for markets in the MSCI All-Country World Index and calculates how many are showing positive 3-month changes in earnings.
From there, the indicator smooths those results using two timeframes—a short-term 3-month average (orange line) and a longer-term 15-month average (black dashed line). The relationship between these two lines forms what’s known as a moving average cross indicator. When the short-term average crosses above the long-term, it generates a bullish, or “buy,” signal. When it crosses below, it signals caution or “sell.”
As shown in the performance box near the bottom of the chart, the pattern has been fairly consistent: since 1995, bullish signals have corresponded with far stronger gains for the global stock/bond ratio compared to bearish ones. That reinforces an important truth about the stock market—mainly that earnings drive stock performance, and when earnings growth broadens across global markets, stocks tend to follow.
Where are we now? Well, back in May 2024, this indicator generated a buy signal for global equities, and since then, global stocks have outperformed global bonds, as predicted by the indicator. But at the end of October (this indicator uses monthly data), we got a sell signal from this indicator. Recent earnings growth breadth has been pretty lackluster relative to its long-term average—and that is now weighing on global stock prospects.
The bottom line? The recent shift to a bearish signal doesn’t necessarily spell doom for global equities, but it does warrant some caution. It will be harder for global stocks to mount rallies relative to bonds if earnings breadth is deteriorating under the surface.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The MSCI ACWI (All Country World Index) is a stock market index that measures the performance of global equities in both developed and emerging markets. It includes nearly 3,000 large and mid-cap companies across 23 developed and 24 emerging market countries, covering approximately 85% of the world’s investable equity market.