Broad US market index gains despite tech stocks’ plunge
Strong corporate profits underpin market resiliance
It’s a little unusual for a broad market index to rise while market-leading tech stocks crash, but it’s worth pointing out that the overall state of corporate profits in the US seems quite healthy. According to third-quarter GDP data released today by the Commerce Department, the gross value added of nonfinancial corporations (corporate sales net of costs) is rising faster than wages, as the accompanying chart shows. Year-on-year growth in employee compensation grew by just 2.5%, compared to a 3.2% rise in value added.
More recent data suggest that subdued wage growth is continuing. The Fed’s Beige Book survey called wage growth “modest” to “moderate” in most parts of the country, and average hourly compensation as of October was up just 2.4% year-on-year. On a GDP basis, pre-tax profits grew 10% year-on-year, the strongest performance in two years.