A just-published report examined the long-term trends in key drivers of U.S. equity market returns, namely corporate profitability, taxation, labor costs, etc.
Some of the historically strong increases in U.S. stock prices and corporate profits over the past few decades has been driven by unique forces that are inherently unsustainable. The surge in U.S. net wealth and equity values relative to nominal GDP in recent years will be increasingly difficult to sustain, and are more likely to decline than continue to rise over the next several years.
Very strong corporate profits have supported U.S. equity prices, but recent trends also are unsustainable. Timing the end of the capital market cycle is difficult, but the risk-reward skew has become less favorable than current pricing implies.
