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Profit Margins

Jun 07 2019

Allocation Implications Of Full Employment

  • Jun 7, 2019

While the economy’s move above its full-employment level carries reliably negative implications for profit margins, the impact on equity returns has varied greatly from cycle to cycle.

Apr 12 2019

Margins Prove Capitalism Still Works

  • Apr 12, 2019

Corporate profits were outstanding last year, but even the benefit of a 40% cut in the top income-tax rate wasn’t enough to lift the net profit margin back to the all-time high of 10.6% established in early 2012. Still, the latest 10.0% figure is more than a percentage point above the 2007 cycle high and about two points better than any other cycle high.

 

Dec 07 2018

They Can’t Tax What’s Not Earned

  • Dec 7, 2018

With three quarters of a sharply lower corporate tax rate on the books, the median four-quarter trailing profit margin for both the S&P 500 and S&P MidCap 400 jumped to all-time records in the third quarter.

Nov 30 2018

What Can Margins Do For An Encore?

  • Nov 30, 2018

A massive drop in corporate tax payments lifted the third quarter NIPA profit margin back to the 10% level for the first time four years. But while we try not to always view the glass as half empty, we find it troubling that margins remain well-below their 2012 highs (10.6%) in spite of this one-time windfall.

 

May 05 2018

The Gap Is Back!

  • May 5, 2018

We celebrated the official closure of the GDP Output Gap in December, but that milestone was revised away in April by the statisticians at the CBO through a downward adjustment to the estimated rate of “full employment.”

Apr 06 2018

Musings On Margins

  • Apr 6, 2018

Fourth quarter earnings were the last ones to be burdened by a 35% top marginal corporate income tax rate, and therefore seem to have been given a pass by the analyst community.

Feb 07 2018

Multiple Contraction—Just A Little Patience?

  • Feb 7, 2018

Things were bigger when you were a kid. Like that enormous sweatshirt your aunt gave you for your birthday or that hand-me-down ten-speed bike with the cross bar taller than your shoulders.

Dec 07 2017

The “Gap” Is Gone. Now What?

  • Dec 7, 2017

In Q3, the CBO’s Nominal Output Gap swung to positive for the first time since the last business cycle peak. This type of move has historically meant the cyclical peak in profit margins is close at hand.

Sep 08 2017

Sector Margin Checkup

  • Sep 8, 2017

U.S. companies hoping for a reduction in the corporate tax rate are not exactly doing a convincing job of demonstrating “need.”

Jul 08 2017

Recent Years’ Oil Price Experience Akin To 1980s’

  • Jul 8, 2017

We revisit commentary we published in 2015 regarding the late-2014 oil price crash and review why, at that time, we believed oil prices could stay at depressed levels for a longer period than most expected. Additionally, we advise avoiding two Energy sector segments: companies with high balance-sheet risk, and Energy Royalty Trusts.

May 05 2017

How To (Almost) Double Your Money In Under Ten Years

  • May 5, 2017

Buying the S&P 500 on one of the worst possible days in history ultimately yielded a total return of +87.4% (+6.8% annualized) through the end of April 2017...darn, sounds like an advert for Vanguard!

May 05 2017

Sector Profit Margins: A Long-Term Review

  • May 5, 2017

Despite real GDP growth of just 1.6% in 2016, the median S&P 500 company earned a net profit margin of 9.7%, only 40 basis points below the record high established in 2014.

Feb 07 2017

“Trailing” EPS Revisited

  • Feb 7, 2017

The S&P 500 trailing P/E has just climbed above 25x—lower than in March 2009—but incredibly high for any period in which earnings weren’t tainted by recession.

May 06 2016

Valuations: The Correction That Never Was

  • May 6, 2016

The correction failed to meaningfully “reset” any long-term valuation measures, hence, we don’t view the current environment as having much investment merit, but rather, primarily speculative appeal.

May 06 2016

Profit Margins At The Sector Level

  • May 6, 2016

S&P 500 profit margins mask the disparate trends taking place on a sectoral level. We dissect those trends with the ten major sectors grouped by five broad themes: Cyclicals, Commodities, Defensives, Interest Sensitives, and Tech/Telecom.

Apr 07 2016

Margins: Mean-Reversion Works

  • Apr 7, 2016

A late March issue of The Economist proclaimed “profits are too high” and “America needs a giant dose of competition.”  Funny. NIPA Corporate Profits figures released that week show The Economist’s plea for lower profits had already been fulfilled—and not just in the latest quarter.

Apr 07 2016

Implications Of Low Growth, Low Inflation, Low Rates

  • Apr 7, 2016

The current environment will likely persist longer than most expect which will put further downward pressure on profit margins. As margins come under pressure, companies increase leverage to prop up ROE. However, the market wants higher duration, not higher leverage.

Nov 06 2015

To Play The Rally, Or Not To Play?

  • Nov 6, 2015

Question: What will you do if the Major Trend Index returns to its bullish zone?

Nov 06 2015

Margins: Reversion Can Be Mean

  • Nov 6, 2015

In Q2, NIPA’s EBIT margin fell to a new four-year low, over one point below the early 2012 cycle peak.

Oct 07 2015

Earnings: What Is Normal?

  • Oct 7, 2015

Corporate profits are notoriously cyclical, and for decades we’ve sought to temper their swings by using a five-year smoothing of S&P 500 EPS in our valuation work.

Oct 07 2015

Margins Showing Some Cracks

  • Oct 7, 2015

While NIPA profit margins peaked nearly four years ago, median margins across the S&P 1500 (and particularly within the S&P 500) managed to hold up until just the past three quarters. But it now looks as though the long-awaited margin squeeze is finally underway.

Apr 08 2015

Earnings: Less Than Meets The Eye

  • Apr 8, 2015

Amid all the praise heaped on the corporate sector for posting record earnings in the midst of a sluggish global expansion, allow us a respectful vote of dissent. Earnings are abysmal—especially among the S&P 500 companies presumed to be the torch-carriers for this cycle’s profitability rebound.

Apr 08 2015

Profit Margins At The Sector Level

  • Apr 8, 2015

A look at profitability trends at the broad sector level; only Utilities and Telecom Services are experiencing levels below their long-term medians.

Dec 05 2014

Margins: Two Interpretations

  • Dec 5, 2014

Government accounting on everything ranging from the CPI, to the budget deficit, to even the unemployment rate is constantly assailed as being too rosy. So when a government report occasionally paints a less optimistic picture than the consensus one, we’re inclined to sit up and take notice (especially when we agree with it).

Dec 05 2014

Sector Margin Trends

  • Dec 5, 2014

The S&P 500 record median profit margin of 10.3% is now almost a full percentage point above the last cycle’s peak of 9.4% (second quarter of 2007). Trends across S&P sectors are not as uniform as one might expect, though, with only half of the ten sectors last quarter at profitability levels that exceeded their 2001-2007 expansion highs.

Jun 06 2014

Just When You’d Stopped Worrying...

  • Jun 6, 2014

A good rule of thumb for fundamental forecasters is that projected events almost invariably take much longer than anticipated to occur, but then—once underway—unfold with much greater speed and power than originally expected (think subprime).

Jun 06 2014

Running The Math On Mega Caps

  • Jun 6, 2014

The recent move by the S&P 100 Index (OEX) above its historic March 2000 high prompted us to take a closer look at the turnaround potential of this perennially underperforming Mega Cap index. Remember, a Large Cap leadership cycle has been in force since April 2011—with the trend strengthening the last few months. What are the prospects for the biggest of the Big Caps?

Apr 08 2014

Profits: “Margin”-al Improvement In Q4

  • Apr 8, 2014

Q4’s margin figure is only one tick below the all-time high of 10.3% set in Q4 2011.

Jan 08 2014

Corporate Profits In 2014

  • Jan 8, 2014

Earnings growth over the next few years will—in the  best case—be forced down to the rate of top-line growth (nominal GDP).

Sep 10 2013

Sector Margins: Just Thank The Consumer

  • Sep 10, 2013

We’ve noted before that profit margin gains since the technology boom have been primarily a Large Cap phenomenon.

Sep 10 2013

Decomposing Today’s Record Profit Margins

  • Sep 10, 2013

The celebrated gains in corporate profitability over the past decade and a half are attributable primarily to proportional declines in “below the line” items like interest expense and corporate taxes.

Dec 06 2011

Profit Margins: As Good As It Gets

  • Dec 6, 2011

Current record high corporate Profit Margins examined in this month’s “Of Special Interest.” Topics include the sustainability of the trend, commodities as profit trackers, margins as a potential forecasting tool and discussion on profits by sector and market cap. 

 

 

Sep 04 2011

Sector Level Profit Margins: Q2 Update

  • Sep 4, 2011

An examination of both near term and longer term historical profit margins broken out by sectors is presented in this month’s “Of Special Interest” section.

 

Mar 04 2011

Update: Profit Margins At The Sector Level

  • Mar 4, 2011

In this month’s “Of Special Interest” section, Jim Floyd updates the broad sector profit margins charts. Information Technology now producing 15% margins, the highest levels ever. Energy and Materials sectors still relatively low, but rising commodity prices will support higher margins in 2011.

 

May 04 2010

Everyone Should Be A Supply Sider!

  • May 4, 2010

Analysts typically focus on demand for products and rarely look at the supply side. Consumer Discretionary companies were rewarded for their pessimistic positioning with better pricing and higher margins. 

Mar 02 2010

Profit Margins At The Sector Level

  • Mar 2, 2010

This month’s “Of Special Interest” takes a look at Q4 profit margins across the 10 broad economic sectors. Best looking is Information Technology, while Consumer groups have also seen impressive gains by becoming lean and mean.

 

Aug 05 2008

Commodity Curtain Call?

  • Aug 5, 2008

Inflation is peaking and the GS Scores did a great job signaling an exit from the Industrial Metals play. Commodities were hit hard in July.

 

Jun 03 2008

Financials Dragging Down Earnings Even On A 3000 Company Median Basis

  • Jun 3, 2008

With or without Financials, earnings momentum has been gradually deteriorating over the past two years as sales growth slowed and margins have been pressured.

 

Mar 05 2008

Profit Margins In Retreat....The Mathematics Of The Downside

  • Mar 5, 2008

Profit margins contracting. Assuming margins fall back to median historical levels, this implies a market decline of about 18%.

 

May 05 2007

Focus On Profit Margins

  • May 5, 2007

While the current economic expansion has been below average in terms of growth, the profit expansion over this time frame has been explosive.