I thought I should present the somewhat bullish view of the margin issue we have been discussing here. PIMCO’s Neel Kashkari is out with a note that underscores what the bulls are thinking about the issue:
- Today many equity investors are asking whether corporate profit margins can stay strong.
- Stock prices today are anchored on strong profits, hence investors’ intense focus on the sustainability of those profits. If they fall, stock prices are likely to follow.
- No doubt individual companies and individual sectors will face margin pressure. But for the equity market as a whole, our central scenario is for corporate margins to remain strong in the near future.
- As always, we are buying individual companies we like based on our analysis of their own fundamentals in the context of the economic environment they are operating in, and we are keeping one eye focused on managing downside risks.