Behind the surprising rise and rise of corporate profits
Corporations are benefiting from more political and monopoly power in a self-reinforcing cycle that sees them taking more profit from customers
New York — Investors betting that the high level of US corporate profits will revert to the "old normal" may have a long and costly wait on their hands. The rise and rise of corporate profits in recent years has defied economic theory which holds that high profits should bring on investment and competition. S&P 500 index profits on sales are pushing towards 9%, which would be 80% higher than the average before 1997 and about 30% higher than we’ve usually seen since. This has helped push cyclically adjusted price-earnings ratios to levels only seen twice before — in 1981 and 1929. US stock prices are high, but those who’ve tried to stand against the tide are not doing so well. The big questions are why profits are so high and whether they can be sustained. Jeremy Grantham, a value investor at GMO, thinks profits have been propped up by a combination of low interest rates, the increasing value of brands due to globalisation, and increasing corporate power. They found that the investme...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.