Tatiana Maksimova | Moment | Getty Images<\/p>\n
S&P 500<\/a> companies are keeping more profit from every dollar in sales than ever before, providing another tailwind for stocks.<\/p>\n Using FactSet<\/a> data, John Butters, senior earnings analyst and vice president at FactSet, showed that the S&P 500’s blended net profit margin is running at 16.9% for the second quarter. That’s up from 14.8% in the first quarter and 12.9% a year ago, and well above the five-year average of 12.4%. <\/p>\n Net profit margin is the percentage of revenue companies get to pocket after they have paid all expenses.<\/p>\n If that 16.9% figure holds, it would be the highest net profit margin since FactSet began tracking the metric in 2009, Butters notes. <\/p>\n Alphabet<\/a> and Amazon<\/a> are the biggest<\/a> contributors to the S&P 500’s record-high net profit margin, Butters said. <\/p>\n Alphabet reported operating margin of 34% in the second quarter, up from 32% a year earlier. The Google parent also posted a $98 billion gain in other income<\/a>, primarily from unrealized gains on equity securities. Amazon recorded other income of $53.4 billion on a net basis<\/a> largely tied to its investment in Anthropic. The e-commerce and cloud giant also posted operating margin of 13.7% in the second quarter, up from 11.4% a year ago.<\/p>\n But the strength goes beyond these two mega caps.\u00a0<\/p>\n Even after excluding Alphabet and Amazon, the S&P 500 margin still looks impressive at 15%, which is also a record and marks the highest net profit margin reported by the index dating back to 2009.<\/p>\n At sector levels, margins have been improving across most of the market. <\/p>\n Eight of the 11 S&P 500 sectors are reporting higher margins than they did a year ago, led by technology, communication services, consumer discretionary and energy.\u00a0<\/p>\n Adam Schickling, a senior economist at Vanguard, told CNBC that the strong demand and operating leverage have helped companies convert more of their revenue into profit.<\/p>\n “Businesses, when they’re busy, are more profitable,” Schickling said. “Firms are busier, they’re more efficient, and that translates into higher margins.”<\/p>\n Technology companies have historically benefited from business models that can add customers or users without a proportionate increase in costs.\u00a0<\/p>\n “Tech companies just have higher profit margins than what you might see from materials, industrials, energy,” Schickling said. “That is a sector is prone to having a higher general profit margin, especially because it has historically been relatively asset-light, which means they’re able to scale up at a very efficient rate.”<\/p>\n Businesses in the tech sector, however, are also experiencing a lot of competitive pressure, with many new entrants to the space, which could mean a potential risk in the future to profit margins in the technology space, Schickling said.<\/p>\n