Chart of the week: US stocks outrun profits

The US stockmarket has become totally detached from underlying profits of its constituent companies over the past three years.

US profits and S&P 500

Investors beware, says Albert Edwards of Societe Generale. America's equity market "has become totally detached from underlying profits" over the past three years. The chart shows the S&P 500 index in relation to the level of national pre-tax profits measured in billions of dollars (so they are currently around $2 trillion). This is the gauge used in the US national accounts, as opposed to the endlessly manipulated quarterly earnings figures US corporations like to present to Wall Street. A large gulf has opened up between official companies' earnings and the level of the stockmarket index. "We saw exactly this disconnect in the late 1990s tech bubble and we know how badly that ended!"

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