Chart Talk {12.01.17}

Two of the things that have been underpinning this market have been corporate profits and low inflation.  Two posts below we showed a chart that shows the growth of corporate profits in 2017.   The chart above shows that corporate profits as a percent of GDP are near record levels.  The negative way to read this is that from these levels, corporate percentages have nowhere to go but down over the next several years.  Probability would suggest that corporate profits being range bound somewhere between current levels and around the 10% level would be supportive of equities.

Also below see the graph that shows historical Price to Earnings levels {P/E} for inflation.  The average P/E is 17.6 based on the 2-3% inflation environment we are currently in.  Stocks right now trade on average with an 18 P/E.  That is slightly above the average rate and elevated from the lowest P/E.  Notice though that were well below that highest level of 26.7.  Again, about average on P/Es for this inflation environment is an element supportive of stocks as we start looking ahead to 2018.

Back early next week.

Link:  Disciplinedinvesting.blogspot.com, "Answering Market Questions Over Thanksgiving" via Abnormalreturns.com: /2017/11/26