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Corporate profits very strong





With today's revisions to third quarter GDP came the first look at corporate profits, and they were huge. Profits after tax are up 16% since the end of last year. This chart compares profits to GDP; note that the scales on both y-axes are similarly calibrated. What jumps out to me is that despite a wrenching recession, corporate profits today have risen substantially more than nominal GDP since the 2001 recession. Profits have essentially doubled in the past 8 years, while nominal GDP has increased by 40% and the S&P 500 has made no progress at all. It would be quite difficult to conclude from this that equities are overvalued, in my opinion.

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