The corporate profit challenge

Two recent articles quoting Talaria Co-CIO Hugh Selby-Smith focus on how the established relationships between interest rates, leading economic indicators, and corporate earnings all point towards falling profitability into the second half of 2023.

Both Investor Daily and Financial Newswire reported on Hugh’s comments that while the period since the global financial crisis (GFC) may have delivered significant returns for investors, it also presented “a false sense of security”.

“The elevated margins and rich valuations experienced since the GFC have contributed to a golden period for investors,” Hugh said.

“But deeper analysis is important. Breaking returns further down into changes in sales, EBIT margins, tax, interest, and valuation, it is striking that operating margin expansion accounted for one third of that return.

“If nothing else, given the record level, it throws the responsibility on the optimists to explain why the future should be the same, or indeed why there should be a positive contribution at all.

“The third most important component was valuation, which accounted for one fifth of the return. Again, we would be interested to hear the case for a similar, or even for a lower but positive contribution over the next decade.”

Read the full articles below:

Investor Daily
Financial Newswire