As a Chief Investment Office, we watched two events closely in late August; the Jackson Hole symposium and the Australian reporting season - the latter continuing into early September.
Firstly though, the former. Throughout the pandemic, a key driver of markets has been how investors perceive the reaction function of central banks - in particular the Federal Reserve (Fed) - to economic data. Over the course of the northern hemisphere summer, market participants have been persistently wary of stronger economic growth leading to an accelerated withdrawal of economic stimulus. This led to good data points triggering instability across equity and bond markets, and conversely bad data points a quick rally. Central banks were, and continue to be, very aware of this current obsession by investors.
Cue the much anticipated Jackson Hole symposium - historically used by Fed policy makers to communicate important monetary policy changes - and what many market analysts thought to be a major event for markets, proved anything but. The Fed walked a very thin line in order to avoid any market disruptions, using careful communication to disentangle the expected tapering decision from rate hikes.
Now to the latter - the domestic reporting season - which delivered surprisingly robust results, but perhaps managed to provide more questions than answers. Positives were abundant; roughly 70% of companies met or exceeded expectations, overall earnings rose approximately 35% across the ASX 300, earnings per share expectations are now 50% higher than their pandemic lows and dividend expectations sit close to 60% above their nadir. Regarding announcements on capital returns, it’s worth highlighting that dividends and share buybacks declared during this reporting season are expected to push close to AUD38b back into investors’ pockets over the next few months - an all-time high and well above the previous record of AUD29b in 2019.