Corporate profitability is at all-time highs. Which sectors are most responsible, why are some lagging, and when will returns revert back to long-run averages?

• Over the last few years, 70% of the largest 1,500 non-financials, representing over nine and a half sectors of the ten-sector economy, are generating returns –as measured by adjusted return on assets (ROA’) –that exceed long-term corporate average levels of returns (a.k.a. the opportunity cost of capital).
• The Materials, Telecom, and Energy sectors comprise firms that, on balance, show returns at or below the opportunity cost of capital. These sectors are belabored with non-differentiated offerings that drive pricing competition, which in turn drives lower or negative economic profits.
• Meanwhile, Consumer Staples, Industrials, and Technology firms show a greater percentage of firms that have corporate average returns above the opportunity cost of capital. Each of these sectors has found ways to create and sell offerings for which customers pay a premium price over the firms’ cost to produce. Hence, they enjoy a higher economic profit.