We remain cautiously constructive on equities generally, notwithstanding their very strong total returns over the last four years. Despite a 71% advance in the S&P 500 since 2002, operating earnings for the companies in the index have almost doubled over the same period, resulting in still reasonable price-earnings ratios. Today, corporate profitability hovers near sixty year highs – yet a closer look at this earnings growth reveals issues of potential concern. We expect macro and microeconomic factors
will conspire to drive profit margins and earnings growth lower, probably sooner than later.

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