Are Corporate Profits Ready to Fall?

U.S. corporations have doubled their debt levels over the past 10 years to buy back shares. Today, profit margins are also nearing their highest levels going back to 1950. The high level of corporate debt along with higher costs of moving operations back to the United States should cause profit margins to normalize 25%-35% lower than it has been over the past several years. This is not a good thing when US stocks are selling at historical high valuations. International and emerging market stocks offer better opportunities over the next several years.

This update is a follow-up to our market update, The Moral Hazard of Corporate Borrowing, on May 19.