Published November 14, 2025
We thought the information from Bob Pisani, former analyst at CNBC, was interesting. Mr. Pisani has a Substack blog for those who might be interested. Enjoy his insights:
“Here’s why the stock market is still at a new high: record profit margins.
Factset reporting this morning that the blended net profit margin for the S&P 500 for the third quarter was 13.1%, the highest net profit margin reported by the S&P 500 going back to at least 2009, when Factset began tracking this metric.
It’s also the 7th consecutive quarter that the net profit margin has increased.
Click to access EarningsInsight_111425.pdf
Why net profit is the critical component for stock prices
Net profit is the critical number for setting direction of stock prices. Simply put, it’s:
Net profit margin = net profit/total revenues x 100.
When profit margins are rising, it generally signals that management is improving the efficiency at which it converts revenues (top line) into profits (bottom line).
It can happen for any number of reasons, including higher sales, reducing the cost of goods sold, improving efficiency (automation), improving the supply chain (better deals from vendors), or just selling more high-margin items.
Regardless: increasing profit margins are generally associated with rising stock prices, and valuations.
Higher profit margins also allow companies more room to make investments and pay a dividend.
Unfortunately, the bounty of higher margins is not evenly spread out.
Why Technology has higher margins
Despite all the (legitimate) concerns about high valuations in the tech space, margins in the Technology sector remain high when comparing to a year ago and even over the past five years:
Technology Sector
(Profit margins)
Q3 2025 vs. Q3 2024: 27.7% vs. 25.1%
Q3 2025 vs. five year average: 27.7% vs. 24.7%
Source: Factset
Those profit margins, at 27.7%, are more than twice the profit margins of the overall S&P 500.
There’s a few simple reasons for that. The main reason is that tech firms rely primarily on software. Software is easily scalable, so if you improve customer sales with relatively fixed costs, you get higher margins.
There are other factors. As companies like Microsoft and Apple have gotten bigger, there are vast hordes of users that are trapped in their ecosystems because their workflow depends on these products.
These consumers are therefore somewhat price insensitive. Great news if you’re a tech company!
Software, as Marc Andreessen famously noted, really has eaten the world.
Other sectors are not so lucky
Not everyone is as lucky as the Technology sector. There’s plenty of sectors where margins have come under pressure due to higher costs and pricing pressures.
For example, Materials, Energy, Health Care and Consumer Staples have all seen margins erode in the last few years. Their profit margins are well below the rest of the market.
S&P 500 sectors: Q3 profit margins
Materials: 10.0%
Energy: 8.2%
Health Care: 7.8%
Consumer Staples: 6.5%
Source: Factset
Materials have seen higher commodity prices and big fluctuations in global demand.
Energy has also seen big price swings in oil and natural gas, on top of uncertainty about the direction of renewable energy and environmental mandates.
Health Care has suffered from high reimbursement, pricing pressure and regulatory complexity.
Consumer Staples have seen higher costs for food products and the difficulty of passing along price increases to consumers.
One final point: while profit margins, in my opinion, is the single most important factor for stock prices, it is not the only factor. For example, the Real Estate sector also has high profit margins (34.8%) but it has underperformed Technology for some time.
That’s because Real Estate is burdened by a very important factor: interest rate sensitivity. They depend on borrowing to finance purchases, and higher rates means higher interest rate expenses.
A second problem for Real Estate: scalability. You’re not dealing with software. This is real estate, the ultimate hardware. Selling an office building is very different from a software upgrade.
Bottom line: it is a very mixed bag out there, but there is a very obvious reason Technology is the price leader.
Market Update
Expectations of an end to the government shutdown sent stocks markedly higher Monday. The S&P 500 rallied +1.5% in a broad-based move driven by the tech/consumer discretionary sectors. Stocks were unable to build on the gain and close little changed Tuesday while AI data center operator Coreweave fell on delays in ramping capacity. Separately, a private report on jobs suggested losses in October as the labor market continues to weaken. Large tech stocks encountered resistance during the day while more defensive sectors gained. The same theme played out Wednesday with stocks offering a mixed and muted performance. Then, tech stocks stumbled badly Thursday with investors suddenly concerned about the path of future interest rate cuts. Yields popped higher pressuring interest-rate sensitive sectors. Small cap stocks fell -3% while the Nasdaq suffered a -2% drawdown. After continuing the downdraft overnight into a weak open, stocks found buyers to rescue stocks to a flat finish Friday. Interest rates again rose notably after opening lower, a negative for investors, typically. A dearth of economic data given the shutdown has combined with some Fed Governors increasingly expressing concerns about inflation to leave investors thinking the Fed might pause their rate cuts. That is a big negative change in sentiment from just a month or two ago.
Stumbles in several higher-risk areas of the market and a lurch upward in interest rates left investors concerned this week despite the shutdown resolution. Friday’s buying of the dip helped the S&P 500 to a flat +0.14% weekly change. The Nasdaq 100 (QQQ) posted the negative of that with a -0.14% result. Small cap stocks better expressed the underlying market angst with a -1.71% slide – the third straight weekly decline for the index.
Warm wishes and until next week.