Tornado Alley (PROG)

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Corporate profits aren't as great as you think (and might not last)
axios.com
Aug 31, 2018



Data:

Companies had a stellar second quarter: profits rose more than 16 percent from last year, according to the Commerce Department. That's great news, right?

https://fred.stlouisfed.org/graph/?g=l1F8

Reality check:

Look at corporate profits as a share of the economy. That figure is nowhere near its 2012 high point. In fact, the number has not changed that drastically in the last few years.

What's next:

The rosy earnings season helped propel stocks to record highs, but some market watchers think the good times won't last. "I really think the big story 6 to 9 months from now is going to be the colossal decline in earnings growth," said Jim Paulsen, chief investment strategist at The Leuthold Group, a research firm.

Here are a few factors that might derail the corporate boom:

- Waning tax cut benefit: Tax cuts automatically boost earnings, but it's much harder for them to boost earnings growth.
- Rising rates: Consumer spending sent inflation to a six-year high, which makes more of a case for the Federal Reserve to continue its plan to raise interest rates. The luxurious years of low corporate borrowing costs might be coming to an end.
- Tariffs: Fears of an escalation of the trade war were a common theme this quarter. Jack Daniels maker Brown-Forman trimmed its earnings forecast for the year, thanks to the trade war. Retailers, too, are monitoring the situation closely.

https://www.axios.com/corporate-profits-not-so-great-9d1d13de-36ff-492a-a8d8-5fc0a407b39f.html