“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.”
– Jeremy Grantham
The S&P 500 gained 12% in 2012 and has almost reached that level of return in 2013 YTD , delayed only by the apparent non-event in Cyprus, led, if one is to believe the talking heads and asset gatherers, not by a Fed-driven liquidity flush but by the mother's milk of stocks - earnings. A major driver of these earnings has been corporations ability to squeeze more blood out of their stones (read - layoff and automate as much as possible) and margin expansion is often cited as the catalyst for the next leg higher in stocks. The trouble with that 'anecdotal' meme, trotted out again and again, is it appears to have hit its unemployment/consumerism-driven limiting point.