In 2 Slides, Here's Why S&P 500 Profit Margins Will Stay Fatter For A Long Time

Profit margins for S&P 500 companies are near all-time highs. And experts agree that these margins are likely to pull back a bit, especially if demand shrinks and the economy goes into recession.

However, profit margin bulls argue it’s a mistake to think that margins will revert to a long-term mean. Rather, they argue that profit margins are in a structural upswing.

Much of this is due to increasing exposure overseas, where costs and taxes are lower. Also, these corporations are employing less leverage, which means interest costs are lower.

In other words, any argument for complete mean reversion should imply that companies will also scale back their overseas footprint and leverage up their balance sheets.

In his 2014 Outlook note, Deutsche Bank’s David Bianco included these two slides showing the long-term changes in the S&P 500 and its companies that have caused profit margins to make a structural move higher.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.