"Equities Peak 12-18 Months After A Peak In Margins; We Are Now 15 Months After The Peak In Margins"

Tyler Durden's picture

Two months ago, we looked at historical examples of what happens with the US economy any time corporate profit margins suffer a drop as large as the one experienced over the past 12 months when margins have plunged by (at least) 60 bps. The outcome: a recession on 5 out of 6 prior occasions.


And while the economy is already feeling the recessionary impact of sliding margins as predicted in early October, with the manufacturing ISM printing at its lowest level since the recession, an even more important question is what happens to the stock market now that margins have peaked. On this topic, most have been mum with the usual "answer" being that margins will keep rising. Alas, as even Goldman recently showed they won't.

So assuming margins have peaked in this cycle, what does that mean for stocks? For the very simple answer we go to Credit Suisse according to which "equities peak 12-18 months after a peak in margins." 

Where are we now? "we are now 15 months after the peak in margins."

So, give or take three more months?

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Dr. Engali's picture

We do know that we are talking about a policy tool right?

Slimjimmy's picture
Slimjimmy (not verified) Dec 2, 2015 7:51 PM

S&P peaked in May FYI.

tarsubil's picture

Doesn't the last second of approach to the black hole last forever?

ebworthen's picture

QE4 and NIRP might hold that off for a bit; unless of course their plan is to raise rates, rake the little people's chips off the green felt (again), and then do QE4 and NIRP. 

It''ll be like 2001 & 2008 - deja vu all over again!

rsnoble's picture

Well then, now that you've figured it out, we need to increase margins!

MajorFall's picture

I thought equities were a 6 month forward looking discounting mechanism?