One of the big fundamental concerns about the stock market right now is the level of corporate profit margins, which are at a 60-year high.
Profit margins are highly volatile, so extremes to one side or the other are typically followed by a sharp reversion to the mean.
Thus, some investors are concerned that today's super-high margins will soon correct to more normal levels, taking earnings down with them. And if earnings drop, the theory goes, stocks will tank, too.
Liz Ann Sonders, the Chief Investment Strategist at Charles Schwab, has looked at this question in detail.
She found the following:
- U.S. corporate profit margins are indeed at nearly 60-year highs
- Part of the reason for this is that American companies are now getting a big percentage of their profits from international operations, so the profit-margin-to-US-GDP is less meaningful than it once was
- Domestic profit margins are also high as a percentage of GDP, but not as stretched as