My market cyclicality motto is being tested

Lower costs have driven profit margins

ultimately, investment returns. The remarkable profit cycle we’re in is fuelling one of the longest bull markets in history.

There are a number of reasons why my cyclicality motto is being tested.

First, the economic cycle in the U. S. has been extended. Indeed, it’s on the verge of being the longest ever, although by no means the strongest. Healthy economic activity provides fertile ground for corporations. Everything works better and is more profitable when there’s a steady flow of customers coming through the door.

But revenue growth hasn’t been the main driver of profit margins. It’s the cost side has driven that.

Labour, which is the biggest expense for most labour.” He went on to point out that wage increases haven’t even kept pace in industries that have had large productivity gains, such as manufacturing.

Companies have also benefited from more free labour. In our do-it-on-yourphone society, they’ve been able to offload more tasks onto willing customers without any corresponding price reduction.

But labour hasn’t been the only low- cost input. Capital has also been cheap and plentiful. Companies can borrow as much as they want at low interest rates. This improves the economics of new projects and acquisitions, and makes share buybacks a reliable profit- enhancing strategy.

Also boosting profits are corporate tax rates that have inant players: railroads, telecom, oil services, banking, wealth management, life insurance and media. There are no weak competitors slashing prices to gain market share.

Beyond the emerging oligopolies are a number of monopolies created by new technologies: Google LLC in search, Facebook Inc. in social media and Amazon.com Inc. in online retail.

It’s telling that research on trends in corporate communications ( annual reports, press releases and the like) reveals that the number of times the words “competitor” and “competition” are being used has plummeted. The business world is more civil than it used to be.

Some of the forces outlined above will (eventually) prove to be cyclical. Labour shortages are becoming more common. Tariff wars and protectionism are making offshore manufacturing riskier. There’s increasing demand for corporations to pay their fair share of taxes. And in the Western world, the push to make companies better stewards of the planet is gaining momentum.

Profits will be cyclical, too. Even if margins have found higher ground, they’re guaranteed to dip during economic slowdowns.