Investment Outlook: Back to the future with fundamentals
A monthly roundup of global markets and trends
Globalisation and technological advances have driven corporate earnings growth, with structural trends such as outsourcing and big data shaping profitability. While trade tariffs create short-term disruptions, solid earnings growth and geopolitical negotiations can continue to support future equity returns.
It’s all about company earnings over the long term
This summer marks 40 years since Back to the Future first hit the big screen—a film that explores how past actions shape the future. The core idea from this Hollywood classic resonates beyond science fiction: it can serve as a framework for analysing financial markets, illustrating how structural trends can influence future developments.
Now the initial shock of US trade protectionism is past, investors are refocusing on the true long-term driver of stock markets—company earnings. Tariffs may disrupt international goods trade, but they are unlikely to significantly reverse structural trends that have consistently supported profit growth and margins. Looking back, key events related to globalisation and technology in the early 1990s have driven corporate profitability.
Globalisation has been a boon for multinationals
Pinpointing the moment the current wave of globalisation took off is difficult. One pivotal catalyst was in January-February 1992 during former Chinese leader Deng Xiaoping’s Southern Tour of the Mainland. In his speeches he promoted entrepreneurship, which led to a series of structural reforms, transitioning China a little away from a centrally planned economy to include market-driven forces, ultimately fuelling growth.
As China became more integrated into the global economy, firms seized the opportunity to access cheaper labour and supply chains in the Middle Kingdom, pushing domestic labour costs lower. When China joined the World Trade Organization in 2001, US labour compensation accounted for 58% of gross domestic product (GDP). However, by the first quarter of 2025 this had declined to just 51% of GDP.1
While some argue globalisation is set to slow or reverse under US trade protectionism, it does not necessarily mean that workers can regain pricing power to demand higher wages. We see three main reasons for this.
First, US trade tariffs are focused on physical products (manufactured goods and resources), while the service sector is largely unaffected. Given that services account for approximately 80% of US employment, trade tariffs on goods alone are unlikely to affect workers’ ability to demand higher wages.2
Second, advances in telecommunications allow companies to redistribute service-sector jobs to areas with higher unemployment and lower wages. Fast broadband speeds facilitate back-office outsourcing from major cities to smaller ones—or even overseas. Job search platforms like LinkedIn have improved the efficiency of matching applicants with vacancies, reducing frictional unemployment.
And finally, firms can also keep costs down by offering working from home to employees in lieu of higher wage demands. Providing this option allows companies to retain top talent while minimising expenses linked to high turnover, including recruitment, onboarding, and training.
Essentially, globalisation is still likely to continue in services and increase access to labour supply for firms. This should act to lower the wage share in economic output and lift profit margins in the future.
“ Now the initial shock of US trade protectionism is past, investors are refocusing on the true long-term driver of stock markets—company earnings. ”
Turning technology and data into money
The pace of innovation has continued to accelerate, transforming industries and daily life. From the early days of electrical power and automobiles to the rise of computers and the internet, each breakthrough has paved the way for the next. A defining moment came in April 1993, with the establishment of the free World Wide Web, transforming the internet into a user-friendly platform by introducing websites, hyperlinks, and browsers. This laid the groundwork for digital expansion, which is now being supercharged by artificial intelligence (AI) and an unprecedented surge in data creation.
As discussed in our July 2024 Investment Outlook, big data collected through apps, has enhanced corporate pricing power in some industries. The scale of data creation is staggering—by 2025, 181 zettabytes of data are expected to be generated, more than 10 times the 2015 levels: for context, each zettabyte is equivalent to the data storage capacity of 250 billion DVDs.3 Following the pandemic in 2020, data creation has surged from digital transformation using AI to enhance customer engagement and higher demand for online services.
This data expansion has sharpened pricing strategies through AI-driven consumer analysis. For example, by using cloud computing, AI, and algorithms, companies analyse personal data to predict consumer purchasing behaviour and determine optimal pricing strategies. A study by KnownHost, a premium web hosting provider, examined whether revisiting travel websites affected pricing due to browser history. Their researchers used two Chrome accounts—one retaining cookies/cache, the other cleared between searches—to analyse price fluctuations. Findings showed that sites where cookies/cache were not cleared had average higher prices ranging from $5 to $254.4
Beyond pricing strategies, big data enhances predictive analytics, optimising inventory management, reducing waste, and personalising customer recommendations. Through analysing purchasing patterns, companies ensure high-demand products remain stocked efficiently while minimising excess inventory costs. For instance, Netflix’s recommendation algorithm drives 80% of user content choices, improving retention and reducing expenses on less engaging content. It is this adoption and utilisation of big data that is set to continue to put upward pressure on profit margins.
Ultimately, rather than just economic growth, it is globalisation and technological advancements that have driven company earnings. Aside from these factors, lower corporate tax rates and net interest have also played a role in lifting profits.
Balancing earnings, trade tariff headwinds and equity valuations
The historical trajectory of S&P 500 earnings per share (EPS) helps investors assess how structural trends impact corporate earnings. From 1900 to January 1992, when Deng launched his Southern Tour, EPS rose at an average annualised rate of 3.9%. Since then, EPS growth accelerated to over 8.1% on an annual basis, supported by globalisation and technology adoption in the global economy.5
Although clearly, current trade disruption could threaten company earnings growth. President Trump’s threats to impose a 50% US tariff on the imports of goods from the European Union (EU) and a 25% tariff on some Apple products not made in the US shows that negotiating trade deals isn’t linear and adds an element of risk for investors. Trump has since delayed the 50% EU tariff until 9 July after a call with European Commission President, Ursula von der Leyen. At the time of writing, it is not clear if the US Court of International Trade can block the bulk of Trump’s global tariffs.
Despite these developments, there has been some recent progress which suggests that trade disagreements may be broadly on the path to resolution, as political attitudes toward negotiation evolve—see our May Investment Outlook. First, in mid-May, Trump announced a “total reset” in relations with China. This included a reduction in US tariffs on Chinese imports to 30% from 145% previously.6 China responded by cutting retaliatory tariffs on US imports to 10% from 125%.7
Second, Trump announced a “full and comprehensive” US-UK trade deal. Though the agreement remains informal and unlike a ratified treaty, it can be subject to future amendments. Additionally, the deal is limited in scope, focusing mainly on autos and steel, while the baseline 10% tariff on most goods persists.
Third, US tariffs appear to have fast-tracked other global trade agreements. For example, the UK agreed a trade deal with India that has been three years in the making. The UK also struck a new trade deal with the EU in what could be a significant reset in their post-Brexit relationship.
Given these developments, market sentiment has improved since “Liberation Day” on 2 April when global equities experienced a significant downturn from policy uncertainty and geopolitical risks. However, optimism about easing trade tensions has led to a staggered recovery in stocks. The MSCI All Country World Index (ACWI) is 7% down on its all time high (in sterling total return terms), compared to being around 17% at its low in early April.8
Ultimately, long-term investors may find reassurance in analysts' consensus projections of 7.8% and 12.6% EPS growth for globally listed stocks in 2025 and 2026, respectively.9 It may be a case of going back to company earnings as a key indicator of future stock market performance and to look through some of the headlines coming from trade protectionism.
Sources
1, 2, 5, 8,9. LSEG/Evelyn Partners
3. Demandsage.com, Big Data statistics 2025: Growth and market data, November 2024
4. Knownhost.com, Do travel sites increase prices on repeat visits?, January 2024
6,7. BBC.co.uk, Trump says US-China relations reset as markets surge on tariff pause, May 2025
