--- title: Profit Growth Is Slipping and That's Not Good for Stocks description: As corporate earnings growth slows, stock valuations are climbing well above historic standards. authors: - name: pauljlim url: https://money.com/author/pauljlim/ at_money_since: 2014 articles: 14 covers: - Identity Theft - Investing - Taxes former_staff: true published: '2014-06-01T02:03:30.000Z' modified: '2014-06-01T02:03:30.000Z' section: Business tags: - corporate earnings - Economy - Macroeconomic trends - Profits - revenues - S&P 500 - stocks - valuations word_count: 288 canonical: https://money.com/profit-growth-is-slipping/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Profit Growth Is Slipping and That's Not Good for Stocks](https://money.com/img/logo-social.png) The fact that companies have been consistently generating record profits in recent years has certainly been a boon to the S&P 500 . Unfortunately, there will come a time when corporate earnings growth will inevitably slow — and that time may be now. [A government report released in late May](http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm) found that overall corporate profits actually slumped in the sluggish first quarter, when a brutal winter weighed on business activity. The Bureau of Economic Analysis says that a key measure of corporate earnings fell 3% in the first quarter, compared to the fourth quarter of 2013. Versus the same period last year, profits slumped much more — 9.8%. This is true for both financial and non-financial companies. Now, there are a variety of ways to measure the health of profits. In the private sector, economists often look at overall earnings growth for companies in the S&P 500. By this measure, profits are still climbing, but the rate of that growth is slowing noticeably. In fact, expectations for both first quarter and second quarter earnings have been cut in half in less than a year. ![Falling earnings chart](https://img.money.com/2014/05/falling-earnings-chart1.png) A big reason why is that the economy is not rebounding as strongly as was thought, and overall corporate revenues are growing only modestly. ![Sales Dwindling](https://img.money.com/2014/05/sales-dwindling1.png) Yet stock prices have been surging faster lately than the rate of both earnings and revenue growth. "Over the past few years multiple expansion has been the key factor lifting equity market levels higher," notes Tom Stringfellow, chief investment officer for Frost Investment Advisors. ![Forward PE ratios](https://img.money.com/2014/05/forward-pe-ratios1.png) Indeed, virtually every part of the stock market is now trading at higher price/earnings ratios — based on forecast profits over the next 12 months — then they have historically. 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