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The next U.S. recession just got closer…
Zero Hedge reports J.P. Morgan’s chief equity strategist sees U.S. companies’ profit margins contracting across the board. All four profit subcategories are affected: domestic, foreign, financial, and non-financial.
As we noted last week, corporate profits as a portion of U.S. gross domestic product (GDP) have been trending down since the second half of 2014.
J.P. Morgan explains how profits are a key leading indicator for the economy:
In the past 60 years, there has never been a recession starting before the peak in profit margins. However, once margins have peaked, the likelihood of a downturn increases materially.
As you can see below, a drop in profit margins immediately preceded a full recession in 11 out of the 12 previous occurrences…
Bottom line: Collapsing earnings margin data is bearish. Stay long cash and gold. And don’t even think about stock or bond investing without implementing PBRG’s risk-management protocol first…
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