During the same period that the P/E rose 44% from the 2011 low, forward earnings rose 12% to a new all-time high of $120.74 per share. Third-quarter after-tax profits also hit new records, as shown in the National Income and Product Accounts (NIPA), as well as GDP on Thursday.
Last week, I noted that the S&P 500 profit margin hit an all-time high of 9.7% in the third quarter. NIPA data shows reported after-tax profits as a percentage of nominal GDP hit 11.1% in the third quarter, also a new record high. S&P and NIPA profit margins are highly correlated. The first is only available since Q4-1993. The latter began in 1947, and is currently well above all previous cyclical peaks.
On a pre-tax basis, profits for non-financial industries rose 8.1% year-on-year to a record high of $1.24 trillion (Saar) in the third quarter. Profits in the financial sector also hit a record high, but rose only 3.0% year-on-year. The latest from the FDIC Quarterly banking profile showed that banks continued to reduce loan loss provisions and net write-offs to the lowest levels since before the Great
. There may not be much room left for banks to increase their profits in this way.
Today’s morning briefing: Taper-Ready. (1) A good trade. (2) The unemployment rate falls to 7% ahead of the Fed’s schedule. (3) Whistle a different tune at the Fed. (4) From “ready to shovel” to “ready to strip”. (5) From “good rotation” to “high rotation”. (6) Record inflows into equity funds. (7) Nothing to fear but nothing to fear. (8) Lots of profit and margin metrics at record highs. (9) YRI Earned Income Proxy at an all-time high. (10) Encouraging development of the labor market. (More for subscribers.)