S&P Profit Margins Have Now Peaked

Tyler Durden's picture

Well, technically they peaked some time ago (contrary to mainstream media propaganda), but we were waiting for another quarter to confirm our findings. For the sake of recreating our results, courtesy of CapitalIQ, we ran an analysis for all S&P 500 companies excluding companies that belong to the S&P Financials Sector Index, ending up with a universe of 418 companies. Then we looked at the last 3 years of gross profit margins on a quarterly basis (13 data points), and did a simple average, simple median, and trimmed mean (excluding top and bottom 15%), and got the following result.

As is obvious, the trimmed mean (probably the best data indicator) has now declined for 4 quarters in a row, the simple average has been in a steady decline for 6 quarters after peaking at 43% in Q4 2009, and the median is practically in free fall and is now back to the summer of 2009 levels.

The take home observation is that regardless of how they are observed, corporate margins have now peaked, and any additional headcuts at the corporate level will be cutting straight into the muscle, leading to even further profitability deterioration. That the margin drop started well before the current quarter confirms that this is far more than just a commodity price inflation phenomenon (although it certainly does not help). The only possibility for bottom line corporate growth going forward is therefore revenue growth in order to grow absolute profitability (as margins are flat or drop), which will come from either economic growth or capex spending: the first of which has been purely artificial courtesy of limited monetary and fiscal stimulus, and the second has barely budged from multi-decade lows.

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Manthong's picture

Take it down to quarter impulse, Mr Sulu.

So Close's picture

low volume algo induced market levitation +1

fundamentals 0

Captain Queeg's picture

Klingon bastards killed my capex.

Cognitive Dissonance's picture

The Federal Reserve dingo ate my baby........fiat.

LawsofPhysics's picture

Tell me something I don't know.

Franken_Stein's picture


Google was funded by the NSA to create a dual use product, a trojan horse,

a global trend analysis and trend localization tool and global resistance assessment tool,

disguised as a search engine.


Did you know this already ?


LawsofPhysics's picture

Yes.  More to my original comment.  I can cut no further without firing people or significantly raising prices.  I hope google is getting the fucking message.

Cheesy Bastard's picture

This was obvious in 2009 when Larry Summers said that it was proof the stimulus was working and that the crisis was over, because of the downtrend in people googling "economic depression"


Al Gorerhythm's picture

Was that knowing of yours absolute?  

Oh yeah, I knew it was all artificially levitated but these confirmations can't just be brushed off.

PaperBear's picture

All downhill from here.

kito's picture

tyler, to put it simply, many of the s&p companies derive a growing portion of revenue from overseas, where real organic economic growth continues. so how do you factor this into your analysis?

GeneMarchbanks's picture

'real organic economic growth'  

Where is this place you speak of?

kito's picture

yes china, india, korea, brazil.

GeneMarchbanks's picture

OK, now, kindly explain what you mean by organic?

dvsteenk's picture

a place with a birth:death ratio higher than one?

Contra_Man's picture

+1 on "Where is this place you speak of?" 

 ...  Bricks eventually crumble too - if you kick them down the road long enough.

Cdad's picture

Bricks eventually crumble too - if you kick them down the road long enough.

Oh no.  No no no.  You apparently have not heard of "decoupling," another criminal syndicate Wall Street idea that the US can fall apart and the EMs can run...which was pumped for weeks as the US fell in 2008.  

Just wait for the magic phrase to be uttered + ________ = profit!

nmewn's picture

Mmm...one of my past favorite phrases was "synergy"...it meant a buyout of another company with the attendant layoffs soon to follow on the bought out side of the company's personnel.

You don't hear it much anymore, but I'm sure the hosts who hold the WS business conferences are brainstorming on yet another innocuous way to say, misery index...its their job ;-)

HpDeskjet's picture

It is in the analysis. It's not like this revenue from overseas suddenly appeared this year... Even with growing revenues from overseas, margins are dropping, its not that hard.

kito's picture

many analysts, as per the post below, feel stocks are the cheapest theyve been in years. only you and all the other zh marxist groupthinkers are correct? so far, dow still above 12000. no qe3. gasp, the market might have its own legs!! oh the horror for capitalism!!!

Tyler Durden's picture

Marxists? Ironically Zero Hedge is the place that is most in favor of free markets without artificial props, true price discovery, and, gulp, the risk of actually failing. It is apologists for centrally planned economies such as yourself that are probably more deserving of the generic marxist brand (whose usage also provides sufficient and necessary insight into the user's intellectual capacity to make any further commentary moot in the first place) no?

Noah Vail's picture

They always give themselves away with the name calling.

LawsofPhysics's picture

yes, because they have nothing else and would just hate for that expensive ivy league education to be less than useless.

Ricky Bobby's picture


True Price Discovery no no we can't have that.

nmewn's picture

"Marxists? Ironically Zero Hedge is the place that is most in favor of free markets without artificial props, true price discovery, and, gulp, the risk of actually failing."

Sic em Ty ;-)

Cheesy Bastard's picture

+1.  These guys have more projection than a multiplex cinema.

nmewn's picture

It gets weird around here sometimes, I thought the stock pump & dump boiler room thingy went out years ago.

Maybe he's a Retro-Troll ;-)

Cheesy Bastard's picture

Same shit, different name.

nmewn's picture

No doubt.

Here's one that came to my attention today...seems the tenth amendment is making a comeback, fortunately...

“Federalism secures the freedom of the individual. It allows States to respond, through the enactment of positive law, to the initiative of those who seek a voice in shaping the destiny of their own times without having to rely solely upon the political processes that control a remote central power.”

Everyone has standing.

"(1) Federalism has more than one dynamic. In allocating powersbetween the States and National Government, federalism " ‘secures to citizens the liberties that derive from the diffusion of sovereign power,’ "


New York v. United States

, 505 U. S. 144, 181. It enables States to enact positive law in response to the initiative of those whoseek a voice in shaping the destiny of their own times, and it protects the liberty of all persons within a State by ensuring that law enacted in excess of delegated governmental power cannot direct or control their actions."


Its starting to get interesting, what this means is, IMHO, is ObamaCare is dead ;-)

HpDeskjet's picture

Then analysts are stupid (or are paid to pretend to be). Stocks are not cheap by measures that are much more relevant than "forecasted" earnings that assume ever rising margins/sales.  Take a look at Shiller's PE, Tobin's Q, Dividend Yields, all will say the same => At index levels stocks are expensive to very expensive. Of course you can find several companies that are doing very well and will continue to do so, but for the majority this is not the case

Caviar Emptor's picture

Yes and by Total Market Cap to GDP (Buffet's favorite metric) it's already at 2006 and 1998 levels. Note: GDP "growth" this cycle has largely been inflation from record stimulus. The organic level would push the ratio over the 2000 peak

css1971's picture

Marxist? QE2 ain't done yet. Dow is down 7%. What has the stock market got to do with capitalism?

p.s. Stop feeling and start thinking.

kito's picture

7 percent? how many times in the history of the market has it been down 7 percent? thats your ominous sign?

Pool Shark's picture


The DOW may only be down 7% priced in FRN clownbucks, but measured against real assets, it's in freefall.

Zimbabwe anyone?


Pool Shark's picture


What good does it do to gain nominal dollars in the silly stock market and pay taxes on cap gains that are just phantoms based soley on the depreciation of the US$?

Better to just get out of the US$ and US markets altogether.


nmewn's picture

"What good does it do to gain nominal dollars in the silly stock market and pay taxes on cap gains that are just phantoms based soley on the depreciation of the US$?"

I'm glad someone else gets it...well stated.

unununium's picture

Are you Bob Brinker, or luscious lips Ken Fisher?

Ricky Bobby's picture

Steve Lies-man is that you?

buzzsaw99's picture

The market "might" have legs of its own? breeheehee! the market is a bunch of bloated corpses floating in a putrid sea of qe-zirp. what a pathetic troll you are. bring back hamy!

kito's picture

yes buzzsaw, because you espouse it in such eloquent terms, it must be the truth.

buzzsaw99's picture

I am fluent in 36 dialects of grifterese and well versed in troll lingo too. The foul stench coming off of butt sniffing booger eating flamebait such as yourself is not unique to my olds factory palate. Did you find that scent in a barnyard while humping a goat?

Noah Vail's picture

I thought you guys knew better than to respond to trolls.


Its like feeding the pigeons.

buzzsaw99's picture

you can't fling a dead cat around in here without hitting a troll. ;)

The Fonz's picture

Well trolls eat cats.... lol 

The Fonz's picture

Do you watch these stocks tick by tick every day? I do. For instance this morning every euro index was down, the dollar was up and I was prepping to make some dough on my shorts.  Then the market goes black. They shut it off for a "glitch". No premarket but the dollar is still trading. Gold gets whacked in less than 3 mins by someone who obviously doesn't care how bad their fill price is. Then The dollar burns off 1/2% and plows right through resistance at 76 on the USDX.  Market opens .25% down from the dollar hit job, and market makers not having a premarket to force them not to game the system.  Then in comes a wall of green ticks that drives the market for 1.5 hours until the double pomo kicks in.  Even with this there was weakness all day.  There are is no market with legs, this is manipulation straight up. That is why the volume is low. Even a bull seeing this will be very very scared to continue.  When the volume comes back the dam will break and it will be a doozy.