Monday, December 9, 2013

Record Corporate Profits (excerpt)

Over the same period that the P/E has increased 44% from 2011's low, forward earnings rose 12% to a new record high of $120.74 per share. Also at new record highs were after-tax profits during Q3, as reported in the National Income and Product Accounts (NIPA), along with GDP on Thursday.

Last week, I noted that the S&P 500’s profit margin rose to a record high of 9.7% during Q3. The NIPA data show that after-tax reported profits as a percentage of nominal GDP rose to 11.1% during Q3, also a new record high. The S&P and NIPA profit margins are highly correlated. The former is only available since Q4-1993. The latter starts in 1947, and is currently well above all previous cyclical peaks.

On a pre-tax basis, profits of nonfinancial industries rose 8.1% y/y to a record high of $1.24 trillion (saar) during Q3. Financial industry profits rose to a record high as well, but were up only 3.0% y/y. The FDIC’s latest Quarterly Banking Profile showed that banks continued to lower their provisions for loan losses and net charge-offs to the lowest readings since before the Great Recession. There may not be much more room for banks to boost their earnings in this manner.

Today's Morning Briefing: Taper-Ready. (1) A good trade. (2) Jobless rate falls to 7% ahead of Fed’s schedule. (3) Whistling a different tune at the Fed. (4) From “shovel-ready” to “taper-ready.” (5) From “Good Rotation” to “Great Rotation.” (6) Record inflows into equity funds. (7) Nothing to fear but nothing to fear. (8) Lots of measures of profits and margins at record highs. (9) YRI Earned Income Proxy at record high. (10) Encouraging developments in the labor market. (More for subscribers.)

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