Eric Basmajian

Corporate profit margins are at the highest level basically in history. We're not super pessimistic on large cap equity indexes unless a recession develops. High corporate profit margins act as a massive macroeconomic shock absorber. When business slows down, companies can simply pause hiring rather than firing workers to protect their bottom line. This prevents the negative feedback loop of a mass layoff cycle, which is the primary catalyst for a deep recession. LONG. Blue-chip, large-cap indexes have the fundamental margin buffer required to remain resilient through current geopolitical volatility and supply-side shocks. An exogenous shock, such as a massive and sustained spike in global oil prices, compresses corporate margins faster than expected, forcing companies to abandon the "no fire" policy and triggering a mass layoff cycle.

Homebuilder profit margins have collapsed from 20% to 11% due to a severe drop in housing production while employment held up, but if mortgage rates stay in the high-6% range, margins will compress further to 8%, forcing homebuilders into aggressive layoffs that would cascade stress through the economy. He expects the housing construction market to remain under pressure.

Autos have the lowest profit margin of all the sectors that we can look at. You're seeing job losses in auto manufacturing. The auto sector is highly cyclical and sensitive to interest rates on both the producer and consumer sides. Because their profit margins are already near zero, they cannot absorb the cost of supply chain shocks or pass higher prices onto a squeezed consumer. This forces them to cut jobs and lower forward guidance. SHORT. Automakers lack the profit margin buffer that the rest of the broader economy enjoys, making them highly vulnerable to the current "higher for longer" rate environment. A sudden drop in interest rates or the removal of tariffs could alleviate margin pressure and stimulate consumer demand for vehicles.

Autos have the lowest profit margin of all the sectors that we can look at. You're seeing job losses in auto manufacturing. The auto sector is highly cyclical and sensitive to interest rates on both the producer and consumer sides. Because their profit margins are already near zero, they cannot absorb the cost of supply chain shocks or pass higher prices onto a squeezed consumer. This forces them to cut jobs and lower forward guidance. SHORT. Automakers lack the profit margin buffer that the rest of the broader economy enjoys, making them highly vulnerable to the current "higher for longer" rate environment. A sudden drop in interest rates or the removal of tariffs could alleviate margin pressure and stimulate consumer demand for vehicles.

Corporate profit margins are at the highest level basically in history. We're not super pessimistic on large cap equity indexes unless a recession develops. High corporate profit margins act as a massive macroeconomic shock absorber. When business slows down, companies can simply pause hiring rather than firing workers to protect their bottom line. This prevents the negative feedback loop of a mass layoff cycle, which is the primary catalyst for a deep recession. LONG. Blue-chip, large-cap indexes have the fundamental margin buffer required to remain resilient through current geopolitical volatility and supply-side shocks. An exogenous shock, such as a massive and sustained spike in global oil prices, compresses corporate margins faster than expected, forcing companies to abandon the "no fire" policy and triggering a mass layoff cycle.

Autos have the lowest profit margin of all the sectors that we can look at. You're seeing job losses in auto manufacturing. The auto sector is highly cyclical and sensitive to interest rates on both the producer and consumer sides. Because their profit margins are already near zero, they cannot absorb the cost of supply chain shocks or pass higher prices onto a squeezed consumer. This forces them to cut jobs and lower forward guidance. SHORT. Automakers lack the profit margin buffer that the rest of the broader economy enjoys, making them highly vulnerable to the current "higher for longer" rate environment. A sudden drop in interest rates or the removal of tariffs could alleviate margin pressure and stimulate consumer demand for vehicles.