The reason behind the continuous rise of the U.S. stock market: The S&P 500 profit margin has reached a historic high of 16.9%. It's not just driven by "the giants dancing alone"; the profit margins in 80% of industries are also on the rise.

The percentage of retained profit for S&P 500 component companies from every $1 in sales has reached a record high, adding another tailwind for the upward trend in U.S. stocks. According to John Barts, senior earnings analyst and vice president at FactSet, the blended net profit margin for the S&P 500 during the second quarter has risen to 16.9%, significantly up from 14.8% in the first quarter and 12.9% from the same period last year, and far exceeding the five-year average of 12.4%. Net profit margin measures the proportion of actual retained profit per unit of revenue after all expenses have been deducted. Barts noted that if the final figure of 16.9% is confirmed, it would represent the highest record since FactSet began tracking this metric in 2009. The technology giants made the largest contribution, but the rally is not solely reliant on these behemoths. Barts stated that Alphabet (GOOGL.US) and Amazon.com, Inc. (AMZN.US) are the main drivers behind the record net profit margin of the S&P 500 index. In the second quarter, Alphabet's operating profit margin increased from 32% in the same period last year to 34%, while other income amounted to $98 billion, primarily from unrealized gains on equity securities. Amazon.com, Inc. recorded a net other income of $53.4 billion, mostly from changes in its investment valuation of Anthropic; its operating profit margin also rose from 11.4% last year to 13.7% in the second quarter. However, the expansion of profit margins goes well beyond these two large-cap stocks. Even when excluding Alphabet and Amazon.com, the profit margin of the remaining S&P 500 constituents still reached an impressive level of 15%, also a historical high since 2009. Widespread sector gains: Eighty percent of industries improved year-over-year profit margins. From an industry perspective, profit margin improvements have spread to the majority of sectors in the market. Eight of the eleven sectors in the S&P 500 have profit margins higher than those of the same period last year, with technology, communication services, consumer discretionary, and energy sectors leading the increase. Adam Hicklin, senior economist at Vanguard, stated that robust demand and operational leverage have helped businesses convert more revenue into profit. Busy companies tend to be more profitable, Hicklin said. When company operations are more saturated and efficient, it naturally translates into higher profit margins. Hicklin pointed out that technology companies have historically benefited from a low-cost expansion business modeladding new customers or users does not require a proportional increase in costs. The profit margins of tech companies are inherently higher than those in materials, industrials, and energy sectors, he said. It is essentially a high-margin industry, especially because it has historically been relatively asset-light, enabling scale expansion with very high efficiency. However, Hicklin also cautioned that the technology sector is currently facing intense competitive pressure, with a large influx of new entrants, which could pose potential risks to future profit margins in this field.