More Proof That It's All About The Margins

Interesting comment from Deutsche Bank’s Ajay Kapur regarding the factors that drive market performance.

In a new note, he argues that investors pay way too much attention to things like GDP and inflation.

For example, this chart shows the lack of correlation between stock price performance and country-wide inflation.

chart

Photo: Deutsche Bank

Instead, he argues that it’s all about margins.

Where margins are growing, stocks are going up, as well as the opposite.

chart

Photo: Deutsche Bank

And so in large part, the stock question in the US comes back to the margins question, which isn’t so much a new idea, but is helpful when thinking about collapsing GDP, low interest rates, deflation, and ultra-cheap PEs.

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