The U.S. or Global GDP Growth: What Really Drives S&P 500 Earnings Growth?

My published paper in 2013 “Understanding the S&P 500: This index offers a Lot of International Exposure”, showed that over the decade 2000 – 2010, international/non-U.S. economies increasingly accounted for the vast majority (~75 - 80%) of the global economic growth. Not surprisingly, on average ~40% of the earnings growth of the S&P 500 was from international markets, with the figure rising to as high as 60% in some years. This would imply that S&P 500 earnings growth would have a higher correlation to global GDP growth than to U.S. GDP growth, and this prediction has indeed been proven correct by recent research by Bank of America that since ~2014, S&P 500 earnings is consistently more correlated to global growth than to U.S. growth. This would also be a reason for the seeming disconnect between S&P 500 returns since the Covid trough even while the U.S. economy is still struggling: after all many parts of the emerging markets particularly Asia have recovered post-Covid much faster than the U.S.