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The Hole at the Center of the Rally: S&P Margins in Decline

  • Analysts see 1% slide in revenue leading to 9.5% drop in EPS
  • Margin pressure building amid rising wages, low productivity
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What's Keeping the Bull Market Alive?

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Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause.

It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8 percent of sales from a record 9.7 percent in 2014.