> You don't think companies have grown at all/become more profitable from 2019 -> 2022?
Wrong angle.
The profits that companies make in 2025 were compared against 0% interest rate. We are now looking at a 4.5% interest rate environment.
So a company that offered 0% profits in 2023, 0% profits in 2024, and 10% profits in 2025 (ie: geometric average 3.2% profits each year from 2023 through 2025) now *loses* money to a savings account that's now expected to earn 4.5% through 2023, 2024, and 2025.
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Companies that offer very little profits with "promise of future profits" are now losing out to savings accounts and other safe investments. Its not that the company has changed, its that savings accounts / safe investments / bonds have changed.
Furthermore, if that company was relying upon debt to generate that profit, their cost has gone from near 0% on that debt, to -4% per year. So they're not looking at 0% profits in 2023, but closer to -4% profits in 2023, -4% profits in 2024, and 6% profits in 2025.
Obviously, this hypothetical depends on how much debt and how much "future profits" a company is expected to have. But growth/tech companies are well known for borrowing tons of money and promising future growth.
Wrong angle.
The profits that companies make in 2025 were compared against 0% interest rate. We are now looking at a 4.5% interest rate environment.
So a company that offered 0% profits in 2023, 0% profits in 2024, and 10% profits in 2025 (ie: geometric average 3.2% profits each year from 2023 through 2025) now *loses* money to a savings account that's now expected to earn 4.5% through 2023, 2024, and 2025.
--------
Companies that offer very little profits with "promise of future profits" are now losing out to savings accounts and other safe investments. Its not that the company has changed, its that savings accounts / safe investments / bonds have changed.
Furthermore, if that company was relying upon debt to generate that profit, their cost has gone from near 0% on that debt, to -4% per year. So they're not looking at 0% profits in 2023, but closer to -4% profits in 2023, -4% profits in 2024, and 6% profits in 2025.
Obviously, this hypothetical depends on how much debt and how much "future profits" a company is expected to have. But growth/tech companies are well known for borrowing tons of money and promising future growth.