Corporate Profit Growth Will Slow

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Michael Smolyansky, a senior Fed economist, claims corporate profit growth will slow appreciably. His case rests on corporate tax and interest rates. Access to his white paper, The coming long-run slowdown in corporate profit growth and stock returns, can be found here.

As if his case was not strong enough, I provide supporting evidence, including the leverage of employees and labor unions, deglobalization, and long-term economic growth trends.

In the long run, stock prices and returns are anchored by the cash flows that companies provide investors. If profits grow slower than expected, stock return projections must be recalibrated.