There has been a disturbing trend of declines in corporate profits among leading American companies. Intel, Norfolk-Southern, 3M, and FedEx are recent examples among varied industry sectors. Yesterday, Nike, a leading consumer products company that has been one of America's esteemed growth stocks, reported that profits declined 12% in its recent quarter.
Profit margins at American corporations have been near record highs in recent years, and they have provided valuation support to stock prices. But with stocks generally up sharply this year (the S & P 500's total return is 16%), I think the risks to equity holders have risen significantly. High levels of investor sentiment (a contrary indicator), the potential for significant earnings disappointments, and troubles in Europe and China that are likely to persist or worsen lead me to reiterate my advice to pare stock holdings and build cash reserves for better opportunities to come.
Steve Lehman
LehmanInvest.blogspot.com/
S & P 500: 1438
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