Record profit margins behind stock market rally, FactSet data show
NEW YORK, Aug. 14. Profit margins have reached their highest level on record, and recent FactSet data show the increase in corporate earnings is drawing from more than sales growth. The figures give the equity rally an earnings foundation.
Key takeaways
- FactSet data show corporate profit margins have reached their highest level on record.
- The rise in corporate earnings is drawing from more than sales growth, giving the equity rally an earnings foundation.
- Margin expansion, not revenue growth alone, accounts for the remaining gain that pushed margins to a record.
- FactSet charts show the margin series reaching a level above any prior reading in the data.
- FactSet did not single out one cause for the record margin level in the material cited.
NEW YORK, Aug. 14. Profit margins have reached their highest level on record, and recent FactSet data show the increase in corporate earnings is drawing from more than sales growth. The figures give the equity rally an earnings foundation.
What FactSet found
FactSet data show earnings are rising at a pace that revenue growth alone does not account for. Companies are widening the spread between what they bring in and what they keep. That spread, measured as a margin, has now reached a record, according to FactSet.
Revenue growth reflects how much business a company is transacting; margin expansion is a different mechanism. When the bottom line grows faster than the top line, cost control or pricing is doing the work. The FactSet data show that is the pattern in the current earnings cycle.
Why the data explain the rally
Stock markets have continued higher. FactSet charts show the margin series reaching a level above any prior reading in the data. That is a bottom-line rationale for the equity move, separate from rate expectations or sentiment.
FactSet did not single out one cause for the record margin level in the material cited. Revenue growth is part of the earnings story but does not account for the full gain, the data show. Margin expansion accounts for the remainder, and together the two have pushed the margin level to a record.