The June 30 2009 earnings season ends officially today.
Only the tiddlers among the small miners and explorers are due to lodge their reports.
On the whole, the results have been much better than expected.
The AMP’s Dr Shane Oliver says that while 2008-09 profits are down 18%, making it the biggest slump since 1990-91, it has not been the disaster that had been feared.
Now, with the economy on the mend and corporate outlook statements turning more positive, he says there is plenty of light at the end of the tunnel.
"Positive surprises have dominated making it the best season for results relative to expectations in two years.
"In the last week we have seen good results relative to expectations from companies such as Westfield, GPT, Woolworths, Fairfax, Oil Search, Harvey Norman and Transfield."
Dr Oliver said that "44% of results have come in better than expected compared to only 18% below. (See the chart)
"This is a big improvement on the last two reporting seasons when there were more companies surprising on the downside than the upside.
"In fact, the net balance of positive less negative surprises of 26% is the best it has been since the August reporting season two years ago."
Looking to the rest of 2009 and into 2010, Dr Oliver says outlook statements have also been far more positive than was the case in the last two reporting seasons.
A year ago many companies didn’t issue guidance, preferring to use terms like "lack of visibility" to explain their decisions to remain mute on the coming year.
The economy and market were changing fast, and in unknown ways.
Then 15 days after the reporting season finished, Lehman Brothers collapsed, other banks and brokerages failed or were rescued in a number of countries, and the outlook seemed to worsen dramatically.
But a year on and the outlook has brightened considerably.
Dr Oliver says that this time around positive outlook comments have dominated negative comments by a ratio of nearly four to one whereas in the last two reporting seasons negative comments dominated.
"As a result investment analysts’ earnings expectations for the 2009-10 financial year have been upgraded by around 3%, signaling the likely start of an earnings upgrade cycle after two years of downgrades.
"Other key themes have been strong margins thanks to cost control, dividends being cut but not as much as expected and continued capital raisings in order to reduce gearing and (possibly) fund takeovers.
"By sector the key areas of upside surprise were in energy, retailing and capital goods and the key areas of downside surprise were in real estate, transportation and telcos."
By way of contrast, the US market saw better than expected figures for the June quarter reporting season, but at a much lower level than Australia.
Stronger-than-expected second-quarter earnings underpinned the market for much of July and August.
According to Reuters, second-quarter earnings now are now expected to be around 27.3%. lower than the second quarter of last year.
"Thomson Reuters data, that compares with a forecast for a 36% from the year-earlier quarter at the start of the earnings period, and a 35.5% drop in the year’s first quarter from the same period in 2008."
73% of the companies that reported results beat estimates — well above the 61% average for a typical quarter, Thomson Reuters said.
So what does this mean for the market?
Dr Oliver believes the cyclical upswing in share markets has much further to go.
"Having risen so far so fast and with September/October being the toughest time of year for shares, they are at risk of a short term correction.
"That said, looking for a correction is pretty much the consensus view at the moment and when everyone expects something it often doesn’t happen.
"Given the amount of cash still sitting on the sidelines, the fact that shares are still well below where they were when Lehman Brothers went bust last September and the improving profit outlook, our view remains that any corrections will be limited and should be seen as buying opportunities.
"Share markets have now entered a cyclical bull market that has much further to go.
"So far the Australian share market is up 43% from its March low against an average cyclical bull market gain of 132% over four years.
"We expect the Australian All Ordinaries and ASX 200 indices to reach 5000 by year end or early next year.
"Commodity prices and the $A appear to have entered a short term pause or correction.
"However, they’re both headed higher over the next 6-12 months as the global recovery underpins commodity demand and carry trades pick up further, benefiting high yielding currencies like the $A."
