May 26, 2022

Corporate profits from current production (corporate profits before tax with inventory valuation and capital consumption adjustments) fell by $66.4 billion in the first quarter which works out to an annualized rate of decline of 2.3% after having risen by 0.7% in the fourth quarter.  During the last year profits on this basis have risen 12.5% to a record high level in the fourth quarter.  The IVA and CC adjustment deals with the difference in depreciation allowances used for accounting and income tax purposes.

In the wake of all the fiscal stimulus packages and the vaccine finally bringing the virus under control, we saw GDP growth of 5.5% last year and we expect 2.0% GDP growth in 2022.  At the same time core inflation should rise about 6.4% this year which should give firms considerable pricing power.  The Fed has embarked on a series of rate hikes, but even if the funds rate reaches 2.5% at the end of this year, the real funds rate will be -3.9%.  This remains a favorable environment for corporate profits and stock prices and we expect a significant increase in profits and stock prices as the year progresses..

Stephen Slifer


Charleston, SC