Buttonwood: Sound the retreat

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A billion shades of grey

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Profits in America may have peaked for this cycle

ARE corporate profits at last running out of steam? The lead-up to the first-quarter results season on Wall Street was marked by an unusually large number of profit warnings, such as that from Chevron, an oil group. According to Morgan Stanley, an investment bank, earnings estimates for S&P 500 companies were revised down by 4.4 percentage points in the first quarter.
As is the custom, having lowered the bar, companies will now beat those revised forecasts, allowing Wall Street analysts to proclaim a “successful” results reason. But when one removes the effect of exceptional items (such as writedowns the year before), American profits are now falling, not rising, according to data from MSCI (see chart).

In a sense, this is about time. The recovery in American corporate profits since the recession has been remarkable: they are close to a post-war high as a proportion of GDP. Bulls have a number of arguments why …

Link to article: www.economist.com/news/finance-and-economics/21601290-profits-america-may-have-peaked-cycle-sound-retreat?fsrc=rss


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