INSIDE INVESTOR: What the half-year reporting season figures revealed

The half-year reporting season is now done and dusted.

And this year’s was one of the most keenly watched in yonks. Why? Because our stock market has been on a roll since mid last year and everyone was keen to see whether or not the earnings would justify the enormous rise in share prices since then.

Stock markets can be among the most frustrating and difficult things to understand.

Most markets are simply a function of supply and demand. An oversupply or reduced demand will send prices down while prices rise as either supply contracts or demand lifts.

That wisdom holds true for stock markets too. But the driving force behind those supply and demand dynamics is speculation, which adds a whole new element to the proceedings.

Stock investors try to predict the future. And that’s why you get booms and busts. Rallies extend for far too long until everyone wakes up one day and realises prices are totally out of whack with reality. The same goes with downturns.

So the 20 per cent rally we’ve seen since June last year has been predicated on better times ahead. Oddly enough, most stockbrokers – who normally are perennial optimists – late last year were predicting impending doom, arguing the economy would hit a rough patch in 2013 and company earnings simply would not justify the rally we’ve seen.

Perhaps they’ve been burnt too many times. They’ve been predicting a turnaround on the stock market ever Christmas since 2008 and they got it half right the first year. Ever since though, they’ve been horribly wrong.

Once again, it seems they have missed the mark. Overall, the earnings were okay. They weren’t brilliant, but they weren’t as bad as previous years and in a lot of cases, they came in much better than expected.

That has many analysts now reworking their forecasts for the overall market and for a lot of individual companies.

For this half year reporting season seems to have proven that the slump in company earnings we’ve seen during the past three years has come to an end. The worst appears to be behind us, particularly for those companies that have been really hurt by the strength of the Aussie dollar.

The dollar is still strong and it’s still hurting. But it’s not getting any stronger and those companies that have survived have learnt to adapt and have really slimmed down.

The rally really has legs. How far can it go? It has a little way to go yet. But if the dollar drops, company earnings will take off.  And the stock market run will gather pace.