For 9 years corporate profits have gone nowhere. The same cannot be said about the stock market or earnings.
It’s a tale of two reporting methods.
Reported Earnings vs Taxes
For tax purposes, corporations want to look as bad as possible.
Income and profit shifting are massive. Many of the largest companies pay no income taxes.
Reported earnings are another matter. Companies throw away anything and everything as “one time expenses”. Then we have analyst estimates that are purposely low just so corporations can “beat the street” no matter what they report.
S&P 500 Earnings
If you are a bull, then the above S&P 500 Earnings Chart gives you an excuse.
However, its pro-forma look nonsense that artificially makes stocks look cheap despite the fact that earnings always revert to the mean.
Shiller CAPE PE
On a Shiller CAPE basis (Cyclically Adjusted PE) basis, this market is one of the most expensive in history, only exceeded by the stock market bubble in 2000.
Even then, there were huge bargains in some sectors, notably energy. Now there are just bubbles giving rise to the “everything bubble” meme.
Regardless, the charts are there and the analysts are cheering. It’s easy to believe whatever story you want to hear.
For further discussion along these lines, please consider Where Will the Stock Market Be a Decade From Now?
Mike “Mish” Shedlock
What was the average PE the last time stocks were considered the safe-haven? You may want to read Armstrong’s latest book, if you can get it (it sold out in less than 3 hrs on Amazon, but he’s working on getting the 3rd edition out asap).
And that “no improvement” reading results, when measured in a unit which has been diluted 50% or so since back then….
Just submit to the market. I have fought it for years. The big drop is right around the corner. Always. Since 2015.
SP500 just keeps on going up. You can’t fight the Fed. Give in and enjoy the gains. Set stops to catch the door.
Sounds like capitulation, there could be a lot of that going around. Always a dangerous time.
It completely is. Like I just wrote. I have been wrong for the last 5 years. History says I’m not though.
A year after a 20% rise in thenSP500 the big 3 return 10%.
“SP500 just keeps on going up. You can’t fight the Fed. Give in and enjoy the gains. Set stops to catch the door.“
I’ve just read Marc Fabers’s Tomorrow’s Gold. (Thanks for the recommendation Mish). That comment sounds very much like of Stage 3 of his 7 cycles. (Chapter5).
Ask yourself these questions.
How long has the market been about to collapse?
How much money have you not made?
When did you start thinking the market was about to collapse?
My answers are a long time, a lot, about 2014.
I most likely will get burned. I’m ok with that. It goes against every thread of my being to just submit and admit I was wrong. But I was.
Mish once said (summarizing) never underestimate how long they can keep things going. We might be more in the middle than the end. Or maybe not.
It’s not the Fed as much as it is global capital flows. The primary reason the Fed has been trying to keep rates down, which they are currently doing in the repo market (which will also fail) is to keep the rest of the world from blowing up (look how much dollar-based debt exist outside the US, and then factor in the impact of a rising dollar).
Buybacks reduced the volume of stocks outstanding, and unicorns can binge on debt forever.
Profits are a legacy concept.
— Yours truly, the FED.
It’s even worse than this, Mish.
Real GDP growth vs Public Debt growth for instance.
Top SP500 companies paying $0 taxes, incentivising stockbuybacks, combined with QE and interestrate-manipulation cannot produce real and organic growth.
So here we are, it’s one giant false paradigm. How do we get out of this?
Companies paying zero taxes is a farce. They may not pay income taxes every single year due to certain carry over losses, R&D credits, etc. It’s all in the tax code.
They can’t escape their portion of payroll, property, sales, etc. taxes.
The $0 (income) taxes argument is a result of a lack of understanding of GAAP tax accounting itself, as well as the fact that GAAP tax accounting does not represent what took place between the company and tax authorities.
A $0 GAAP tax provision for income taxes does not mean no income taxes were paid. A negative figure does not mean a company not only paid nothing but actually got money for free from the government.
“this market is one of the mist expensive in history”
No doubt a Freudian slip but somehow oddly appropriate.