Corporate profits

Cautious investors: corporate profits are lower today than in 2014

Executives at America’s biggest corporations say profits have never been higher, but government accounting tells a different story.

According to data from the Bureau of Economic Analysis, corporate profits, after adjusting for inventory valuation and capital consumption, remain 3.6% below their peak in Q2 2014, while the S&P 500 SPX,
-0.11%
profits are expected to increase by almost 40% between 2014 and the end of the year, according to FactSet.

This marked difference is one of the reasons Ed Clissold, chief US strategist at Ned Davis Research, said that “the quality of earnings is among the weakest in the expansion and consistent with the behavior of the end. cycle of leadership teams, ”in a Wednesday research note.

Research Ned Davis


There are several other reasons for concern, Clissold wrote, including that in the second quarter of 2019, the difference between profits based on generally accepted accounting principles (GAAP) and what companies report as operating profits. is the 8th largest ever. “The implication is that companies are pulling levers up and down the income statement to support earnings growth,” he said.

Another reason why economy-wide earnings per share and corporate earnings diverge are corporate share buybacks, which he said totaled $ 750 billion in the past four quarters. These purchases fueled earnings per share growth, although earnings remained stable.


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