Apart from the usual charge of the very late reporters (with hundreds of millions of dollars in losses) this morning through the ASX, the December 2014 reporting season is over.
The local market jumped more than 6% last month for one of its biggest gains for years.
And there’s every chance it could go further, even though it is well ahead of US markets (which fell in January), but tracking two months of solid gains in Europe.
Expectations of further rate cuts (possibly tomorrow) and the current low level of rates is offsetting the weak economy and forecasts of more sluggish gains to come through the rest of the year.
Giving cash back to shareholders via higher dividends and the occasional buyback (Amcor, Rio Tinto, Seven Group and Nine Entertainment) was a highlight as companies gave back their cash to their owners rather than invest it.
Investment plans for restrained by the weak economy and the lack of confidence caused by a combination of the still unresolved 2014-15 budget and the political instability in the government.
But it is also clear many companies see no need to invest because they are making good profits with their current asset deployments and pricing – not even the threat of weak inflation, a falling dollar and a slowing economy and wage growth has been enough to cause a change of mind.
And while it was a mixed period, with quite a few hits and misses (such as BHP Billiton and the Commonwealth Bank on the positive, and CSL, Woolworths and Bradken on the downside), overall results were better than feared.
According to the AMP’s Dr Shane Oliver, while we have seen the usual slippage in the quality of results towards the end of the reporting period, “5% of results have beaten expectations against a norm of 45%, 66% have seen profits rise from a year ago, 52% have seen their share price outperform the day results were released and 62% have increased their dividends.”
Key themes from the reporting season were the ongoing tough times for resources and mining services companies (as WorleyParsons and Ausdrill, for example, confirmed, along with the reorganisations announced on Friday by Rio Tinto and Glencore).
Dr Oliver said there was “reasonable growth for the rest of the market helped by ongoing cost control, and solid growth in dividends.
"Earnings expectations for the current financial year are little changed. Sure resources profits are falling around 20%, but this is a bit less negative than earlier expected. Meanwhile, banks are seeing profit growth around 8% and industrials around 10%,” he added.
Citi Research strategist Tony Brennan said on Friday the reporting season was marked by a strong advance in the sharemarket, driven by the RBA’s rate cut at the start of the month.
“Although we’re wary of expecting the market to maintain a higher rating, we think it could persist for a while, as the economy continues to adjust to the end of the resources boom and interest rates remain low," he wrote on Friday.
And Deutsche Bank strategist Tim Baker wrote in a note of clients that this earnings season has sparked share price volatility at the stock level, the likes of which haven’t been seen for 18 months.
Of the sectors, health services was the winner, led by Ramsay Healthcare’s solid earnings. Consumer staples suffered the mostt, with Woolworths results and share plunge also spooking Wesfarmers and Metcash investors.
“This may reflect full valuations in the market, stocks that disappoint are de-rated back to normal valuations, while stocks that deliver on earnings are seen as a safe haven,” Mr Baker commented.
