Quarter in Review

Going into the final day of trading, the front page of the Wall Street Journal proclaimed, “Stocks on Pace for Best Two Years in a Quarter-Century.” This should have specified “United States Stocks,” which sustained their leadership through the fourth quarter to close out a great year.

The Russell 3000 Index rose 2.6% during the final quarter led by Growth, which advanced 6.8%, overcoming the 1.9% decline in Value. For the year, the Russell 3000 advanced 23.8%, led by the 32.5% surge in Growth versus the 14.0% uptick in Value.

Unlike the performance exhibited within the United States, broad foreign equity indexes declined during the quarter. The MSCI All-Country World Index ex-USA (ACWI ex-USA) fell 7.5%, as emerging markets declined 7.8% and developed markets dropped 8.1%. For the year, ACWI ex-USA rose 6.1% as emerging markets outpaced developed markets 8.1% versus 4.4%.

What Lies Before Us

According to the London Stock Exchange Group’s (LSEG) Institutional Brokers Estimate System, analysts project growth in earnings for the year ahead. Regarding the S&P 500 Index, a measure of United States large cap companies, analysts estimate earnings-per-share (EPS) will increase year-over-year (YOY) 9.6%, for the fourth-quarter 2024. Should this growth be realized, EPS for calendar year 2024 is anticipated to increase 10.2% YOY. For calendar year 2025, analysts estimate EPS will grow 14.3% YOY.

EPS growth relating to United States small caps appears to be the most optimistic. Analysts estimate fourth-quarter growth in EPS for the Russell 2000 Index of 42.4% YOY, which if realized would put 2024 calendar year EPS growth at 20.6% YOY. For calendar year 2025, analysts estimate EPS will grow 46.4% YOY.

Outside the United States, analysts estimate fourth-quarter growth in EPS for the MSCI EAFE Index of 4.8% YOY, which if realized would put 2024 calendar year EPS growth at 1.5%. For calendar year 2025, analysts estimate EPS will grow 7.8%.

Given the YOY growth rates for EPS projected by analysts, are valuations stretched? The forward price-to-earnings ratio over the next twelve months (P/E NTM) for the S&P 500 stands at 22.1x, well above its 20-year average of 16.1x. When considering its price-to-earnings growth ratio (PEG), the S&P 500 trades at 1.7x, in line with its 20-year average of 1.6x.

While these measures may appear inflated when compared to historical averages, United States large caps have recently delivered sustained growth in earnings, specifically within sectors such as Information Technology, Communication Services, and Consumer Discretionary. Recent positive estimate revisions by analysts appear to be focused primarily within the largest companies by market capitalization, which (for the most part) are constituents of the sectors previously mentioned.

United States small caps may appear the most attractive, based on projected earnings growth as discussed above. The P/E NTM for the Russell 2000 stands at 24.3x, in line with its average of 24.5x and materially below the projected earnings growth for calendar year 2025. When considering its PEG, small caps trade at 2.0x, again in line with their historical average of 1.9x.

Valuations for foreign developed may appear the most reasonable. The P/E NTM for EAFE stands at 13.8x, in line with its 20-year average of 13.5x. When considering its PEG, EAFE trades at 1.5x, modestly above its 20-year average of 1.4x which is similar to the PEG ratio of United States large caps. Given the associated rates of earnings growth projected by analysts for these two sub-classes, one may understand the resiliency of United States large cap performance relative to that of foreign developed markets.

In Summary

Given the current structure of global equity market capitalization, which is skewed toward the United States (specifically United States large cap), we remain cautiously optimistic regarding equities going forward. Our analysis incorporating factors, such as growth, valuation, and certain macro-aspects support our near-term outlook for equities. Within an environment that exhibits numerous variables, companies which exhibit long-term quality metrics (regardless of region) that sustain earnings growth at reasonable valuations should benefit investors going forward.


The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

This content is provided for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and should not be interpreted as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.