Where is the economy headed? With the troubles of huge debt (by governments and consumers) and the possible collapse of the Euro it is very hard to be certain. And where is the stock market headed? That is also difficult to predict. Of course, where the stock market is headed in the short term is never easy to predict. If you can predict, you should be rich (though it likely takes a bit more, knowing how much to risk…).
At least by knowing what has happened you can be ahead of where many people are. The USA economy has not been in a recession, we have actually been growing. Just doing so very slowly. And doing so without many added jobs. Companies however, have been doing very well.
For investors knowing if this is a positive trend that can be expected to continue or an aberration is key. But I have no way of knowing. My guess is it is at least partially something that will continue (but maybe a portion of the gains are an aberration) – but this is just a guess. This bloomberg article looks more at the issue.
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The margins of non-financial companies in the U.S., a widely used measure of profitability, reached 15 percent in the third quarter, according to data from Moody’s Analytics Inc. in West Chester, Pennsylvania. That was the highest level since 1969. When the recession ended in the second quarter of 2009, the comparable number was 8.7 percent.
The most compelling data supporting my belief is the long term trend.
But where this trend ends and starts reversing won’t be obvious until years after it happens. But investors that can predict (or guess) margin changes will likely be rewarded financially.
Related: The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects – Is the Stock Market Efficient? – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation