S&P500 Q4 Profit Margins Decline By 27 bps, 52 bps Excluding Apple

What a difference a quarter makes: back in Q4 2011, in light of the imploding global economic reality, the only recourse equity bulls had to was to point out that corporate profitability was still at all time highs, and to ignore the macro. Fast forward a few months, when Europe's economic situation continues to deteriorate with the recession now in its second quarter, China's home prices have just slumped for a 4th consecutive month (forcing the PBOC to do only its second RRR cute since November), Japan is, well, Japan, yet where the US economic decoupling miracle is now taken at face value following an abnormally high seasonal adjustment in the NFP establishment survey leading to a big beat in payrolls and setting the economic mood for the entire month (with flows into confidence-driven regional Fed indices and the PMI and ISM, not to mention the Consumer Confidence data) as one of ongoing economic improvement. That this "improvement" has been predicated upon another record liquidity tsunami unleashed by the world's central banks has been ignored: decoupling is as decoupling does damn it, truth be damned. Yet the bullish sentiment anchor has flip flopped: from corporate profitability it is now the US "golden age." How long said "golden age" (which is nothing but an attempt to sugar coat the headline reality for millions of jobless Americans in an election year) lasts is unclear: America's self-delusion skills are legendary. But when it comes to corporate profit margin math, things are all too clear: the corporate profitability boom is over. As Goldman points out: with the bulk of companies reporting, in Q4 corporate profits have now declined by a significant 27 bps sequentially, and an even more significant 52 bps excluding Apple.

While we won't comment on the fact that Apple is accountable for half the margin delta in the S&P (or that the entire InfoTech space ex. Apple would have recorded a 2% EPS Growth and 8% sales growth instead of the 19% and 16% in EPS and Revenue otherwise reported), it is now clear that the "record profit" story is well and truly dead. As a result, the only "upside" case is for the delusion-driving US decoupling to continue, until such time as Europe is "fixed." Then again, since Europe's capacity for self-delusion is also quite impressive, it is not unrealistic to expect the continent to onboard the hopium pipe with the reckless abandon... of America.


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