Profit margins are supposed to revert to the long-term average. In the US, however, they appear to be in a structural upswing. The chart depicts the overall profit margin of the 500 firms that comprise America's blue-chip S&P 500 index: their total earnings divided by their total sales.
As Epsilon Theory's Ben Hunt points out, $1 of sales produced around 3 cents in earnings a quarter of a century ago. Now a record 11 cents will reach the bottom line.
A key reason for this is an increase in pricing power amid a gradual decline in competition throughout the economy, with several industries now dominated by just a handful of players. Easy money and low interest rates keeping zombie companies alive have also hampered competition.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Viewpoint
Martin Vander Weyer, The Spectator
-
Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
-
State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
-
The charts that matter: bond yields and US dollar continue to climbCharts The US dollar and government bond yields around the world continued to climb. Here’s what happened to the charts that matter most to the global economy.
-
The charts that matter: markets start the year with a crashCharts As markets start 2022 with a big selloff, here’s what happened to the charts that matter most to the global economy.
-
The charts that matter: Fed becomes more hawkishCharts Gold rose meanwhile the US dollar fell after a key Fed meeting. Here’s what else happened to the charts that matter most to the global economy.
-
The charts that matter: a tough week for bitcoinCharts Cryptocurrency bitcoin slid by some 20% this week. Here’s what else happened to the charts that matter most to the global economy.
-
The charts that matter: omicron rattles marketsCharts Markets were rattled by the emergence of a new strain of Covid-19. Here’s how it has affected the charts that matter most to the global economy.
-
The charts that matter: the US dollar keeps on strengtheningCharts The US dollar saw further rises this week as gold and cryptocurrencies sold off. Here’s how that has affected the charts that matter most to the global economy.
-
The charts that matter: gold hangs on to gains while the dollar continues higherCharts The gold price continued to hang on to last week’s gains, even as the US dollar powered higher this week. Here’s how that has affected the charts that matter most to the global economy.
-
The charts that matter: inflation fears give gold a much needed boostCharts US inflation hit its highest in 30 years this week, driving gold and bitcoin to new highs. Here’s how that has affected the charts that matter most to the global economy.
