Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thanks, Brandy. Appreciate it.
Brandy Auterson-Hurst:
So stock valuations have been high for a while now and a lot of people wonder if that’s sustainable. Is there a way to make sense of it?
David Nelson:
Yeah. I think one of my favorite charts I brought along today as far as to show folks and that basically what it’s trying to illustrate and what we believe is it doesn’t give enough credit as far as to what’s taking place as far as today. History, if we look at it as far as over a period of time and the chart that I have today goes back to the 1950s and it’s looking at corporate profits and the trend is pretty eye-opening. The first 50 years on this chart, that number averaged around 5%. Again, this is looking at basically corporate profit, but starting around 2000, something really changed and profits as the share of the economy started climbing and they’ve been steadily setting records almost every decade since. In the 1920s or the 2020s rather, that share averaged about 9%, which is about 68% higher than historical averages looking at 1950 to the year 2000.
Three things are driving this and this is really crucial. Lower corporate tax rates, number one. Number two, companies becoming much more focused on returning value to shareholders. And then number three, which is the biggie and it’s the most important and that is big tech’s ability to generate enormous profits from global customers without the overhead of traditional investments. And so the bottom line is corporate America simply become more resilient.
Brandy Auterson-Hurst:
Okay. So what does this mean for investors?
David Nelson:
I think it’s basically saying that AI is likely to keep this trend moving forward and time will tell, but AI is certainly going to impact things.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.