Advertisement

US profit margins are motoring

Profit margins are supposed to revert to the long-term average. In the US, however, they appear to be in a structural upswing.

946_COTW

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.

Advertisement - Article continues below

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.

Viewpoint

Martin Vander Weyer, The Spectator

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Should Big Tech be broken up?
Tech stocks

Should Big Tech be broken up?

The dominance of the big four technology giants has attracted the attention of politicians determined to humble them. But what real harm are they doin…
8 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020