Wry & Dry

US stocks at all-time high. But where are the profits?

Ah, the ignorance of politicians.

Senator Elizabeth Warren, one-time wannabee US President and bestie* of Hillary Clinton when either requires a bestie, said during the recent Democratic National Convention (the BBQ event that nominated Hillary as their presidential candidate):

"Here's the thing: America isn't going broke. The stock market is breaking records. Corporate profits are at all-time highs. CEOs make tens of millions of dollars. There's lots of wealth in America, but it isn't trickling down to hard-working families like yours"

Well, she got most things right (stock-market all-time high, lots of American wealth, CEOs making squillions, failure of 'trickle-down' wealth effect).  

But she got the others wrong.  The irrefutable W&D Fact Checker will not this week review the US governments' (federal, state, local) debt position.  Except to say that federal debt (as big as it is) makes up about half the total government debt.  State and local government debt is massive.  The outlook is grim.

But, instead, this week, the W&D Fact Checker has a look at US company profits (earnings): 

US corporate profits dividends and pricesHistorically, share prices have, sort of, followed company profits. (Dividends lazily follow profits, but in a smoothed manner.)

But, as you can see US company profits peaked two years ago.  And have declined since then (even allowing for energy companies' headwinds from the oil price collapse).  Chances are they will trough-out in the December quarter, as the business cycle moves on.

The problem is the big disconnect between profit growth and share-price growth.  And there will come a point when dividend growth will decline, unless companies want to keep on borrowing more and more.

W&D hesitates to suggest a share price collapse.  There isn't the market 'exuberance' nowadays that readers saw prior to the earlier recent market peaks (2000 and 2007) - both of which peaks led to nasty downturns.

Perhaps more likely is a shallower but longer share-price downturn or sideways movement as the share-market price growth allows the earnings growth of companies to catch up.

ice

The ice is slippery, but perhaps not yet thin.

But who knows.  In the short-term the share-market is emotion looking for a home.

*Girlie language for best friend.