The stock market trades off the income statement and we highly doubt that margins can expand further with nominal GDP growth rolling over to justify a consensus view of 35% profit growth in the coming year. (According to data cited by the WSJ, current earnings estimates implicitly assume margins that are 50% above historical norms — right).
But the credit market trades off the balance sheet and in the broad corporate sector it is as strong as any other time in the past five decades. There is a massive $1.84 trillion on the nonfinancial corporate balance sheets — up 26% YoY. This is a huge buffer against default risk, which, after all, is what matters for the credit space. But what this pile of cash means for earnings — or for perceived rates of return on new investments — isn’t good.
--- Rosenberg 7/21
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