Corporations Are Almost Unbelievably Optimistic About The Prospect For Fatter Profit Margins

You’ve probably heard how negative companies are right now as one after another has slashed forward earnings guidance throughout this earnings season, preparing for a tougher second half of the year.

However, sentiment toward the outlook for 2013 is surprisingly positive. So positive, in fact, that expectations are for profit margins to have their largest increase ever next year – by a mile.

Morgan Stanley chief U.S. equity strategist Adam Parker presents a chart in his latest monthly strategy presentation, showing that 86 per cent of the top 1500 companies in the U.S. are expected to post increases in profit margins next year:

2013 profit margin expectations

Photo: Morgan Stanley

The highest ratio of companies increasing margins to companies not increasing margins is around 60 per cent, and that level has been tested continuously over the past 40 years – so 86 per cent may be a bit much to expect.

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