Summary of Peak Profit Margins?

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Peak Profit Margins? summary
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Since 2009, US stocks have been on a record run that has left investors richer but also wary. In this concise but thought-provoking look at the financial climate, a team from investment giant Bridgewater Associates argues that caution might be the best policy. Corporate profits have soared due to two decades of falling wages and declining tax rates. But that cycle is nearing its logical end, and the authors warn that a backlash against big business could lead to a less permissive regulatory climate. Or the profit machine might simply reach a plateau. In either case, they advise, investors should be on guard.

About the Authors

Greg Jensen is co-chief investment officer at Bridgewater Associates, where Atul Narayan is a senior associate and Oliver Simon and Lauren Forman are professional staff.



Corporate profits have energized US equities markets since the mid-1990s. Rising margins account for much of the run-up in stock prices. Absent ever-fattening profit margins, US share prices would be 40% below today’s levels. Many investors expect profits to continue to grow. However, if margins drop back to historical norms, then US stocks are overpriced. Several strong tailwinds combined to produce “the most pro-corporate environment in history”:

  • Falling labor costs contributed the most to climbing corporate profits...

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