Today, the Bureau of Economic Analysis announced an upward revision to its annualized third quarter real economic growth figure -- from 3.8% to 4.3%. This is good news, but the detail that caught my eye was that corporate profits declined.
As I predicted in mid-April, considering the post-Great Depression economic structure of the United States, corporate profits as a percentage of our economy in 2004 or 2005 were/are probably near the high water mark. This means that corporate profits will grow no faster than the economy at large, which right now stands at a nominal 7.2% annualized rate and should eventually run at around 5.5% on a long-term basis. It seems possible that the third quarter corporate profits figure represents a turning point and that we are headed toward lower corporate profit growth.
Wall Street is pricing its shares as if it expects much larger than 5.5% corporate profit growth. Given this, the stock market may sell off for the next couple of years.
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