Corporate profit margins are at all-time highs.
The stock market’s bulls and bears are willing to agree with this fact. But that’s about it.
The bears are convinced that margins are doomed to mean revert. Among other things, they note that companies are no longer able to squeeze further productivity out of their workforces. They also warn that rising interest rates mean higher interest expenses.
The bulls will acknowledge that margins are at risk of pulling back especially if revenues fall or if the economy goes into recession. But for now, they don’t see much giveback. Furthermore, they believe that margins are in a structural upswing as companies have slashed their exposures to debt and increased their exposures to low-cost, high margin overseas regions.
Blackstone’s Byron Wien thinks this is a crucial story.
In fact, when Business Insider asked Wien for what he considered to be the most important chart of the year, he sent us a chart of historical profit margins on the S&P 500.
“This chart worries me,” said Wien. “Profit margins are at a peak and they appear to be rolling over. This could mean trouble for 2014 earnings.”