Bridgewater Associates explores whether decades of rising US corporate profit margins are nearing a turning point and what that could mean for equity valuations. Margins have driven over half of excess returns, and without them equities could be roughly 40% lower, raising questions about sustainability.
Peak Profit Margins? A US Perspective
Bridgewater
Greg Jensen
Research
17 Pages
Key Takeaways
Margins Drove Returns: Profit margin expansion accounted for over 50% of equity excess returns over the past 20 years, making it a primary driver of market performance.
Valuation Sensitivity High: If margins revert toward historical averages, equities could be materially overvalued, with downside scenarios implying up to 40% lower price levels.
Structural Tailwinds Fading: Key drivers like falling tax rates, declining unionization below 10%, and lower interest rates near 0% may reverse, pressuring future profitability.
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