After Hitting A 13-Year High, Company Profitability May Struggle To Climb Much Further

After Hitting A 13-Year High, Company Profitability May Struggle To Climb Much Further
Andrew Rummer

over 2 years ago1 min

After storming back from the shock of coronavirus to hit a 13-year high, company profit margins around the world have stalled over the summer – creating a hurdle to further gains in global stocks. 

As the chart shows, operating profit margins at companies in the MSCI All-Country World Index (plotted in blue) have topped out at the highest level since 2008. Meanwhile, the index itself (in pink) has declined nearly 5% over the past month. 

Stocks may struggle to climb much further from here unless company profitability can continue to grow. So investors had better hope that margins don’t slip when companies begin reporting their third-quarter results next week. 

But, as the chart suggests, margins have a tendency to revert back to average levels after a period of either excessively high or excessively low profitability. And with surging costs for raw materials, energy, and labor coming companies’ way, they may struggle to push margins much higher from here.

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