Kieger Multi Asset Chart of the Month

After the COVID-induced selloff in March 2020, the US equity market has climbed strongly and steadily to new highs. For the whole of 2021, this has been earnings-driven, rather than multiple expansion. Certainly, the economy has rebounded. But in addition, behind the scenes, PROFIT MARGINS are running at record highs! It appears that the pandemic and lockdowns have driven significant cost-cutting and technology-led efficiency gains.

What does this mean? Firstly, companies can afford to pay higher wages and input costs and this doesn’t have to feed through to consumers. So perhaps this really will be the “good” type of inflation. Secondly, with strong earnings, no multiple expansion this year and possibly good inflation headlines, the medium-term outlook for US markets is rosy. Keep an eye out for a jump in productivity figures.