Is it fair to give Ben Bernanke (and his predecessor Janet Yellen) much of the credit for the current bull market? After all, many have come to believe that ultra-low interest rates, coupled with aggressive stimulus in the form of bond buying, has lit a strong and durable flame under stocks. These same folks also fret about the market’s eventual response when the Fed finally starts raising rates, perhaps in the middle of 2015.

To be sure, the Fed’s actions haven’t hurt. The era of easy money has helped the current bull to become the fourth-longest since 1929.

Yet the Fed fixation obscures another key driver of the ongoing bull market: Corporate profits. They’ve been rising at a solid pace since 2009, for some fairly direct reasons, including:

— Steady top-line growth, which, of course, is the key factor behind profit growth.
— Automation enabling companies to produce more with fewer workers.
— Economic insecurity, which has given employers the upper hand in salary discussions.
— A weak dollar, which has boosted exports and blunted imports.
— A wide range of loopholes that have enabled many companies to pay far less than the stated 35% corporate tax rate.
— Massive stock buybacks, which have helped to magnify profit gains — on a per share basis.
— Firm oil prices and output, which has helped the energy sector to sharply boost profits compared to a few years ago.

These gains have led to profit results that few could have anticipated back in 2008 and 2009.

Make no mistake, 11% aggregated profit growth (on a per share basis) is quite respectable, and the market can keep moving to fresh highs as long as companies can keep boosting earnings per share, or EPS, at the same rate. Trouble is: the key factors driving EPS growth are starting to fade. And once the Fed takes away the punch bowl (bond buying), the market will become solely dependent on profit growth (or lack thereof) for further gains. Let’s take a closer look.

The Dollar Reversal
As the global economy got back on its feet in 2009 and 2010, the yen, the euro, the Brazilian real, the Australian dollar and other currencies posted impressive rallies against the dollar. Yet the past few quarters have seen a clear reversal. The euro, for example, has slumped badly in recent months, and strategists at Goldman Sachs believe the two currencies may reach parity in a few years, which means the dollar will keep rallying.

A strong dollar means that U.S. companies become less competitive in foreign markets, or will at least have to cut prices in order to retain market share. Meanwhile, foreign firms can use the currency moves to give themselves pricing power in our markets. Net-net, the portion of income derived by U.S. multi-nationals from foreign markets is bound to drop. Another concern: tourism spending will also take a hit as fewer foreigners come to our country. That impact is already being felt in New York City and will likely spread elsewhere if the dollar keeps rising.

We may be seeing the start of a broader sales slowdown, regardless of exports and currency issues. In the third quarter of 2014, sales (for companies in the S&P 500) rose 3.8% from a year ago. That’s down from the 4.4% rate in the second quarter and a full percentage point lower than the five-year average.

#-ad_banner-#Even as companies fight to preserve their revenue base, they may start to feel more stress on their expense base. The huge amount of slack that existed in our job market is starting to be taken up and as employers have a harder time filling open positions, they will have to offer better salaries to attract talent, or simply give bigger raises to retain key personnel.

Prior to the advent of any incipient wage pressures, companies are in a golden era of profitability. According to Yardeni Research, net margins now exceed 10%, on an aggregated basis. That’s up more than 50% in the past 30 years. In fact, this metric has expanded by 150 basis points in just the past 18 months. It’s safe to say that a decent portion of the double-digit EPS gains for S&P 500 companies in 2013 and 2014 has come from peak margins, which are now the highest on record.

Tax Boost Fades
One of the key drivers of profit growth has been a shrinking net tax rate (after loopholes are utilized). According to one study, nearly two-thirds of profit gains are the result of falling taxes, while the rest is due to rising operating margin gains. Few expect higher corporate tax rates any time soon, but it’s also unwise to expect tax rates to keep falling. In effect, this key net profit tailwind has been played out.

The Fading Buyback Impact
Anecdotal reports suggest that the volume of share buyback activity peaked in the first quarter of 2014 and has moved a bit lower in the second and third quarters (though it remains quite high when compared to historical buyback volumes). That may partially be the result of a shift toward higher capital spending. It may also be the result of a realization that ever-higher stock prices render stock buybacks less meaningful. A $250 million buyback can meaningfully reduce the share count when a company is valued at $1.5-or-$2.0 billion. Yet so many companies have seen their market value soar in the past few years, and $250 million simply doesn’t impact the share count like it used to. This is just another former EPS tailwind that is growing less windy.

Risks To Consider: As an upside risk, lower energy prices are lowering the expense base for any energy-intensive industries, which should help boost their margins in 2015.  

Action To Take –> Economists currently believe that aggregated profit growth in the S&P 500 can again exceed 10% in 2015 and 2016. They are likely correct — if the U.S. economy posts strong GDP gains, perhaps in excess of 3%. But in the absence of such robust economic activity, per share profit growth may be closer to a peak in this current cycle than many realize. The key factors that have conspired to boost EPS are all starting to fade. There’s nothing wrong with 5% EPS growth, but as the Fed starts to raise rates in 2015 and 2016, that level of EPS growth may not be enough to keep this bull market going.

No matter what market we are in, stocks with the highest “Total Yield” are a safe bet. This is a measure of dividend yield, share buybacks and debt reduction — all shareholder friendly moves that tend to correlate with a stocks performance. Since 1982, this group of companies have returned an average of 15% a year and outperformed the market during the dot-com and 2008 financial crisis. For more information about Total Yield investing, click here.