Chart of the Week: SP500 Operating Margins Vs. Interest Rates

Raymond James’ Jeff Saut writes: “Historically interest rates had very little impact on the operating margins (a/k/a, profit margins) of corporate America. But, as the U.S. economy morphed into a “financed-based” economy, when interest rates declined profit margins expanded. We have argued that this is because more and more corporations are deriving their earnings from the financial side of their businesses.”

SP500 Operating Margins Vs. Interest Rates
Spx_earnings_vs_margin
Source: Raymond James

“As interest rates rise not only should we experience the historic precedence of a slowing economy and a contraction in price/earnings ratios (P/Es), but also a contraction in profit margins with a concurrent softening in earnings momentum.”

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