US economy is still in a middle phase of the business cycle

With profit margins still hovering near cyclical highs, it is fair to say that the US economy is still in a middle phase of the business cycle. The late-cycle dynamic is generally characterized by acceleration in wage growth, rising interest rates and rising depreciation, all of which tend to squeeze profit margins by varying degrees. These forces have yet to materialize in the current business cycle. In this context, the recent repricing of risk appears to be largely non-fundamental. 

"We expect profit margins to come under pressure in coming quarters as the labor market tightens and wage pressures intensify, this is likely to be only gradual", says Societe Generale.

In the meantime, the corporate cost structure is still very lean which should help corporate America to weather the impact of any external shocks. Of course, this is no guarantee of stability as was recently demonstrated by the oil & gas sector. However, a 60% collapse in output pricing - and thus revenues - constitutes a major shock that is unlikely to be repeated in other sectors.