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Printed: 08 July 2022 12:11 AM


27 Aug 2021 - Hedge Clippings | 27 August 2021
By: Australian Fund Monitors


Hedge Clippings | Friday, 27 August 2021


Driven by low/zero/negative interest rates, low inflation, Central Bank intervention, massive infrastructure spending and advances in technology, equity markets have been almost unstoppable since the GFC ended back in 2009/10.

Even the Covid correction in early 2020 only caused a temporary blip on the equity charts, before further government stimulation kicked things off again.

Hence the question is often asked about when and why we'll come to the end of one of the more significant bull runs in the history of equity markets. Short of some kind of left-field geopolitical event (Taiwan perhaps?) the 'why' is probably pretty clear: When governments and central banks take action, either on tapering their bond buying, or when interest rates rise as a result of inflation.

As for the 'when', well that might not be too far away, with all eyes on Fed Chair Jerome Powell at the current Jackson Hole virtual symposium, followed by three equally closely watched Federal Reserve meetings due before the end of the year.

The Fed's Powell has been at pains to keep the markets and economy as steady as possible for the past year or more, waiting until "substantial further progress has been made toward our maximum-employment and price-stability goals."

We'll have to wait until after the weekend to hear whether he thinks sufficient progress has yet been made, but in the meantime equity market second quarter reporting season in the US has probably been a case of as good as it gets, certainly according to data courtesy of Dr. Ed Yardeni's excellent research analysing y/y growth in S&P500 revenues and earnings per share in Q2.

Growth in revenue per share increased by 18.5% in Q2, while earnings per share rose 87.7% and both revenue and earnings grew to record levels, as did the S&P500's profit margin, at 14%.

Yardeni also reports a record number of positive and negative earnings surprises in Q2 - 87% beating expectations while only 9.8% were below expectations - the most and least since the data series started in 1987. For those old enough to remember, '87 was a memorable year on the market as well, but for all the wrong reasons.

Back to the present, 5 out of 11 of the S&P's sectors' profit margins were at record highs, and as for the future, Yardeni's expectations for forward revenues, earnings and profit margins all rose to new heights in August, suggesting Q3 will be another record quarter, and we're sure Jerome won't want to spoil the party.

Meanwhile, next Tuesday Australia is reaching the end of its own full year reporting season, and to get an up close and personal account of how our listed corporate sector has exceeded, met, or fallen short of expectations we'll be speaking to Rodney Brott from DS Capital, whose Growth Fund has an 8 year track record and has consistently outperformed the ASX200 each year, with lower volatility, and as a result, has a Sharpe Ratio of 1.31 since inception.

A recording of the interview will be available in next week's Hedge Clippings.

Last week's edition of Hedge Clippings briefly compared the tribulations of Australia's Covid restrictions with the life-threatening difficulties of people wanting to leave a locked down Afghanistan. Those difficulties tragically became more real overnight, with the added realisation that thanks to ISIS while the Taliban may now be in power, the country will remain as dangerous as it has been for the past 20 - and some will say 200 - years.

In 1946 Winston Churchill spoke of the Communist Iron Curtain coming down across Europe. Sadly, a different Iron Curtain is coming down for the people - and particularly the women - of Afghanistan.

And on that note, have a safe and happy weekend.

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