America's stock market rally is on borrowed time

American corporate profits appear to be "running out of steam", says Buttonwood in The Economist. They had recovered after the crisis and are close to a post-war record as a proportion of GDP.

But first-quarter S&P 500 earnings estimates were revised down by more than 4% between January and March, and profit warnings have been unusually plentiful.

Remove the effect of one-off items, such as a big write-downs the year before, and you will see that year-on-year profit growth is falling, according to Morgan Stanley Capital International. And a quick rebound looks unlikely.

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While revenue growth has been gradual, profit margins are near record highs and due to fall, says Doug Kass of Seabreeze Partners Management. "We've had years of fixed-cost reductions by corporations and that's basically over, because they've cut to the bone."

There is scant additional scope for bolstering productivity and the labour market should gradually tighten, raising staff costs. The picturein America, which sets the tone forworld markets, isn't offset by especially strong outlooks elsewhere.

In Britainand the eurozone strong currenciesweigh on earnings. In Europe thishelps explain why profits have yet to rebound convincingly despite the economic recovery.

In many stock markets, companies derivea growing proportion of profits fromemerging economies, many of which have been slowing and undermining multinational companies' earnings through falls in their currencies.

All this adds up to a lacklustre future backdrop for global profit growth, which has already disappointed: in 2013, it reached 7%, compared to forecasts of 12% at the beginning of the year; in 2012 it hit just 2%, while the initial estimate was 11%.

Global stock markets have been "remarkably resilient" despite unimpressive earnings, soaring by 13% and 24% in 2012 and 2013 respectively, says Buttonwood.

But lacklustre earnings are now going to become ever harderfor investors to ignore which isanother reason to fear that this rally, already the fourth biggest and fifth longest for the S&P 500 since 1928, ison borrowed time.