Return on Corporate America Faces the Perfect Storm

Corporate America's record 20% return on equity faces a 'perfect storm' of dilution from multi-trillion dollar AI and SpaceX IPOs, rising inflation, and fading fiscal support. This transition threatens the high profit margins that have driven equity returns for the past decade.

Key Takeaways

• 1.US Large Cap ROE is near historic highs of 20%, but faces a structural reversal driven by inflation and massive capital calls.
• 2.Imminent mega-IPOs from AI leaders and SpaceX (totaling $3.25T-$4T in valuation) will significantly increase the equity denominator, diluting overall ROE.
• 3.Fading fiscal deficits and elevated inflation are expected to compress profit margins, which have been the primary driver of ROE over the last decade.

Table of Contents

• Low IPOs, High Buybacks Have Kept Net Equity Supply -ve
• Staying Out of Inflation Significantly Improves Real Wealth
• Return on Equity Fell in the 1970s
• Stocks Did Not Become Attractive Again Until Early 1980s
• Rising Profit Margins Have Driven ROE Higher
• Profit Margin Growth Is Fading as Fiscal Impulse Weakens

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