Except since 2000? And in international stocks.
An efficient market though knows that, and moves more or less instantaneously to a higher valuation reflecting the greater returns available. Since valuations are high (but not necessarily very high) against historical norms one could argue the market has moved there - priced in the potentially higher returns.I also become more skeptical of the lower return hypothesis as the market IMO is becoming more efficient over time & the longer the returns stay high, the more wrong the lower return hypothesis is proven.
Wealth = stock (static). Profits = flow. Markets are valued on expectations of future profits. The problem is that gains in one part of the market are compensated for by losses somewhere else. The disruptive effect of Amazon, Google, Apple etc. If consumers spend $1000+ on a smartphone they didn't spend that on something else.One item the lower return hypothesis folks do not account for is the value of the unforecasted advances in technology that create large amounts of wealth.
However profits have grown. Part of that is simply buying back shares - EPS grows even if profits don't. Another part is record high EBIT margins for US companies:
- for financial stocks we have to be very careful. Finance is simply intermediation. Vanguard & ishares' demolition of the profits of conventional asset managers simply moves numbers around - might actually shrink the market for financial services in revenue terms. Similarly a bank's profits are an estimate of the returns it made from lending and from securities trading - a profit made from someone else in the financial system. What we saw in 2008 was the massive writeoff of much of the alleged profits of the financial intermediation sector over the previous few years - look at the size of the banks' writeoffs which were multiples of annual profit.
- non financial it's quite real. But it is strikingly pronounced in a group of technology-related companies.
Companies have profited from holding down wages while increasing revenues. However productivity growth has not been stellar (since 2000, there's actually a break point around the 1973 oil crisis, and we've never caught back up to the 1946-1973 growth rates in productivity, except for a short period in the late 1990s).
You have full employment in the USA, practically. You have the entire world going through a demographic shift towards aging. You have a pause in globalisation (and maybe a stop or in fact retrograde). These are not bullish for the ability of capital to keep taking value from labour.
In that scenario, profits don't grow as fast, or even fall, in aggregate. On the other hand, AI & robotics mean capital continues to win v. labour.
The ratio of stock exchange value to GDP has grown. That's the market saying that a greater share of GDP in the long run will go to profits/ the owners of capital. But we've had nearly 40 years of that trend - can it keep going? It's certainly much lower in (most) other countries.Although this effect is not consistent over time it does occur but is lumpy. The benefit of these advances accrue to equity holders. I agree incumbents will be hurt by innovation, but suppliers also benefit. One way to see the aggregate benefit is to look at the market cap of entire stock market. This clearly has increased over time despite the losses by the incumbents.
On who benefits. The evidence is that private companies do, on average, better than public companies. Public company profits grow by less than profits for all companies.
That's consistent with a world where Venture Capitalists and Founders manage to extract the benefits of their new processes & technologies. Then, when they (with insider information) foresee the flattening out of that trajectory, they IPO or sell to listed companies (GE used to be a great buyer).
Quoted investors in other words don't have access to the fastest growing parts of the corporate world.
Just on technology
Think about something truly revolutionary since the 1960s. Containerization. The US Military, with its establishment of a 550,000 man force in Vietnam, an underdeveloped country, needed to move vast amounts of freight to a country without modern ports. And they turned Cam Ranh Bay into one of the world's largest ports by financing what became Sea Containers.
The impact of containers & containerization on the modern world cannot be underestimated. 10% of more of goods used to be lost, damaged or stolen in shipment and in port. Longshoreman used to be one of the largest and most powerful unions. The rise of modern China as a manufacturing power would have been literally impossible without containers. Ditto WalMart, the world's largest retailer. Containers are the blood vessels of the modern world.
Who benefited? Well shipping companies consolidated down to a few huge players, which don't make much money (volatile, capital intensive industry). Railroads benefited in some countries (USA in particular). Truck companies benefited.
The real beneficiary was consumers who got goods cheaper and faster from around the world. The economy as a whole grew because of higher productivity (same input, more outputs). Now that meant they had more money to spend so perhaps they spent it somewhere else. But it's hard to see any direct beneficiary in the transportation industry itself.