The Ever-Widening Margins of the S&P 500

This is one of those charts that tells a tale all on it own:

(Click on the image for nice, big version)

That’s from Yardeni Research, and shows just how fast and how far operating margins of Standard & Poor’s 500 index companies have grown in the past couple of years.

The operating margin, of course, is the ratio of operating earnings and revenues — in the case of this chart it’s trailing four-quarter numbers. You can see from the image that right now we’re at levels not seen for well over a decade, and at an ever-flattening level.

The enormous jump of the past couple or so years is mostly due to cutting costs, for instance layoffs and lower capital expenditure.

All this strongly suggests that from here revenues are going to have to do the heavy lifting when it comes to earnings growth — and that, depending on your view of the economy, may or may not be a worrying proposition.