通货膨胀调整后的利润和飙升的股价

Inflation-adjusted corporate profits have been declining for five years.

Profits have tripled over the past 24 years while stocks have gone up 10-fold. The divergence is mostly since 2009 when quantitative easing was implemented.

A recession starting in 2020 is rising, and investors are shifting to safe-haven assets. Fund categories that are trending strongly over the past three months are listed.

Two dozen top-rated recession-resistant funds are provided.

Profits are a good, long leading indicator of recessions four to eight quarters prior to the onset. Corporate profits have been declining for years. This article looks at profits, profit margin, dividends, investment asset flows and trends, and recession outlook. Investors are reducing risk by shifting to bonds, cash, and real estate.

I use a ranking system based on valuation, momentum, risk, risk-adjusted returns, and yield to identify recession-resistant funds. This month, I looked at which Fund Families are accessible to investors through Vanguard, Fidelity, and Charles Schwab as no/low transaction fees. The number of fund families was then limited based on number of funds, and average risk and risk-adjusted performance of their funds. Over 1,300 mutual funds, exchange-traded funds, and closed-end funds were selected and rated from about 20 fund families. All Fund Families are rated as "Top" or "Upper" by Mutual Fund Observer with an occasional fund of interest that I include.

Profits tend to decline four to eight quarters prior to a recession. Chart #1 shows that inflation-adjusted profits have been declining for the last five years from $1.8T to $1.4T (22%). Profits not adjusted for inflation are also declining.

Chart #1: Corporate Profits Before Tax

Source: St. Louis Federal Reserve (FRED)

With low interest rates and quantitative easing, there has been a large divergence between profits and stock prices since 2009. Chart #2 shows the relationship of profits to the Wilshire 5000 Total Market index for the past 24 years. Profits have tripled while stocks have gone up 10-fold.

Chart #2: Corporate Profits vs Stock Market Prices

Source: St. Louis Federal Reserve (FRED)

Yardeni Research created the following chart that shows profit margins have been increasing during the same time period. There are many possible factors that can contribute to falling profits and rising profit margins including improved technology, increased globalization, and declining labor participation.

Chart #3: S&P 500 Profit Margin

Chart #4 shows that Labor Compensation as a percentage of gross domestic product has been rising since about 2010, but is still low by historical standards.

Chart #4: Shave of Labor Compensation in GDP

Source: St. Louis Federal Reserve (FRED)

Rising employment costs during the late stage of a business cycle, while good for the consumer, often put downward pressure on profits. Chart #5 shows the average hourly wage has been rising since 2010.

Chart #5: Average Hourly Earnings of All Employees: Total Private

Source: St. Louis Federal Reserve (NASDAQ:FRED)

Stock buybacks historically occur more often during bull markets and slow down during bear markets when companies are strapped for cash. During recessions, Equity Income and Large Cap Value funds tend to fare better as shown in Table #1, which breaks out funds for the past two recessions by dividend yield. S&P 500 dividends per share fell from $7.62 per share for the fourth quarter of 2017 to $5.35 per share in the third quarter of 2009, a fall of nearly 30%.

Table #1: Equity Income Performance During Bear Markets

Source: Created by the Author Based on Mutual Fund Observer

Reported earnings and dividends per share for the S&P 500 are shown in Chart #6 along with the payout ratio.

Chart #6: Reported Earnings and Dividends Per Share

Source: Created by the Author based on S&P Dow Jones Indices

From Charles Schwab, I read:

Lipper Alpha Insight reports that for the past week:

The rise in money market assets can be seen in Chart #7. Investors have been increasing levels of cash for the past two years.

Chart #7: Money Market Assets

Source: St. Louis Federal Reserve (FRED)

There was a short-lived run-up in stock prices in August as volatility continues. The Moving Average Convergence Divergence Momentum Indicator below shows that the market may be in for a dip in the near future. I expect that a major correction lasting many months is not likely for the next six to nine months unless the signs of a recession dramatically increase.

Chart #8: Stock Market Momentum Indicator

Source: Created by the Author

From Mutual Fund Observer Premium Search, the following funds are trending the most over the past three months.

Table #2: Assets Trending over Past Three Months

Source: Created by the Author Based on Mutual Fund Observer

The top-ranked funds per Lipper Category are shown in Table #3, extracted from the Mutual Fund Observer MultiSearch screener. The Ulcer Index measures the depth and length of drawdowns (low is less risk). The Martin Ratio is the risk-adjusted return (higher is more reward for the risk taken). Equity is the percent equity in the fund. Bear is the performance over the 2007 Bear Market. Note that money markets rate high at this time.

Table #3: Top Performing Funds

Source: Created by the Author Based on Mutual Fund Observer

Table #4 contains the one month return, ratings, premium/discount of closed end funds, tax efficiency, and assets under management of the funds from Morningstar. The price to earnings ratios of the funds are included in the table, and the S&P 500 is 27 is for comparison purposes. I show the one-month return to reflect how the funds behaved as bonds experienced what I believe to be a temporary downturn.

Table #4: Morningstar Ratings and Metrics

Source: Created by the Author Based on Morningstar

A recession appears increasingly likely to start in late 2020. Investors have been rotating to traditional safe-haven assets like cash, quality bonds, income, gold, real estate, utilities, and consumer staples. August saw a small downturn in many of these assets. Short-term interest rates are likely to continue to fall.

I have reduced holdings in real estate and utilities because of the large run-up over the past year. I have also made small increases to money market funds and short-term Treasury bond funds.

Recessions and bear markets are commonly occurring events. They are not something to be feared as long as you have a long-term plan and are prepared. There is time to prepare, if you take the time and watch. As Ed Easterling says, this may be a time to row instead of sail.

I am/we are long VTABX, VWINX, VMMXX, VFICX, PRSNX, VTINX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.