That’s because the next bull market—whenever it begins—will be heavily dependent on those margins remaining not only at their current well-above-average level, but expanding even further.
The accompanying chart provides the historical context. As you can see, profit margins have been rising for many years, and hit a record in the second quarter of 2021. Even though they currently are only modestly below their mid-2021 record, their decline over the last year and a half has been accompanied by a bear market on Wall Street. That is not a coincidence.
In other words, given these assumptions, the stock market over the next decade will barely keep up with inflation.
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