Bridgewater warns of peak U.S. profit margins, lower stock prices

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(Reuters) – The major drivers of high U.S. corporate profit margins are unsustainable and “now under threat”, which will eventually result in much lower equity prices, Bridgewater Associates, the world’s largest hedge fund, said on Wednesday in a report.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 29, 2019. REUTERS/Brendan McDermid

“Over the last two decades, U.S. corporate profit margins have surged and have contributed more than half of the excess return of equities relative to cash,” said Bridgewater, which oversees more than $160 billion in assets.

“Without that consistent expansion of margins, U.S. equities would be 40% lower than they are today.”

Over the last few decades, almost every major driver of profit margins has improved, Bridgewater said.

“Labor’s bargaining power fell, corporate taxes fell, tariffs fell, globalization increased, technology allowed for greater scale and lower marginal costs, anti-trust enforcement fell, and interest rates fell. These factors have produced the most pro corporate environment in history. Many of these drivers of high profit margins are now under threat.”

“Some of the forces that supported margins over the last 20 years are unlikely to provide a continued boost,” Bridgewater said.


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