The writer is chair of Rockefeller International. His latest book is ‘What Went Wrong With Capitalism’
Investors insist that today’s US stock market boom is justified by very strong corporate earnings and is nothing like the dotcom mania. They remember the late 1990s as a time of wild speculation on doomed, profitless companies such as Pets.com and say today’s hot tech stocks are different, built on solid earnings, not hype. A 28 per cent surge in the past quarter’s earnings — the kind of increase normally seen in a post-crisis recovery — reinvigorated faith that the US market can power through anything, including trade wars and real wars.
America’s profit machine seems extraordinary by historical and global standards. But look closer, and cracks appear. Rising government deficits explain a surprising share of recent US earnings growth. Moreover, the “profitless” dotcom era is a myth. Earnings growth is not dramatically stronger today than it was in the late 1990s. Since then, speculative excess has moved into private markets, making the public markets and the economy look more robust than they really are. In short, this expansion is more dependent on government and the earnings story is less exceptional than investors realise.