The next two weeks will tell us just how wounded corporate Australia has been by the slump.
So far the profit reporting season has been weak, but not as bad as feared, or as damaged like the US is revealing.
The AMP’s Dr Shane Oliver says that of the 28 major companies to have reported so far, 36% have come in above expectations which are actually better than in the last reporting season.
"While US exposed companies have generally struggled, there have been some good results from stocks such as JB Hi-Fi, Computershare, Cochlear, Resmed, Rio Tinto and Coca-Cola Amatil.
"Against this, outlook statements have tended to be pretty cautious as would be expected and many companies cut their dividends to help preserve capital."
The BHP Billiton result was pretty sound, given the sectors it operates in (although the loss in copper was a surprise).
The outlook for it is not strong and the comments of Arcelor Mittal, the world’s major steel group, won’t engender confidence.
It seems the steel industry will not be returning to October 2008 levels until late 2010 or in 2011.
Woolworths and Westfield report next week: they have been defensive stalwarts, but Westfield is now on the nose after a capital raising, a big asset downgrade and more to come next week.
Wesfarmers (Coles’ owners) reports today.
Dr Oliver says that despite all the bad news and big capital raisings, the fact that share prices have just managed to range sideways over the last couple of months may be a sign that downwards pressure is fading and that shares are bottoming.
Dr Oliver says "At this stage it’s too early to be definitive and a fall to new lows is a high risk for the next month or so.
"However, we remain of the view that shares are attractive and should provide solid gains over the next year or more.
"Shares are now very cheap, offering yields – even after allowing for falling dividends – much higher than those available on cash and bonds.
"Massive global fiscal and monetary easing is likely to result in a global economic recovery from later this year and/or through 2010 and shares will lead this as they normally do.
"Finally, there is a mountain of cash sitting in bank accounts and money market funds that will provide the fuel for an eventual recovery in shares.
"Bond yields are likely to fall over the next six months or so as worries about expanding budget deficits and increased sovereign risk is more than offset by the impact of very low short-term interest rates, falling inflation and the possible purchase of bonds by central banks.
"The $A is likely to remain stuck in a range between $US0.60 and $US0.70 as long as global growth and commodity prices remain poor. However, stronger global growth should be supportive for the $A next year."
The contrast here though remains quite stark when compared with the US where the damage has been nasty, with falling sales, earnings falling and jobs being slashed daily.
American financial groups and housing-related companies remain black holes (as we saw locally last week with reports from James Hardie and Boral revealing severe damage from the US housing black hole).
Now US analysts say that the 4th quarter looks like revealing the steepest fall in earnings for at least 10 years, as steep write-downs from banks mount and companies across a wide swath of sectors downgrade their outlooks.
Although analysts slashed their expectations ahead of what was widely expected to be a bleak earnings season, earnings still came in well below expectations, suggesting Wall Street had failed to get its arms around the scope of the economic crisis.
Estimates were for a small rise at the end of December when estimates were first issued: that became a fall of 14% to 18% two weeks later, now it’s around 40%.
And US analysts see no early return to improvement: expectations for the coming quarters have been changes downwards as companies have hacked their own outlooks.
Investors in late December had expected earnings growth to return in the third quarter, now it’s the 4th quarter.
Reuters pointed out on Friday that it was only last October that analysts were forecasting a 46% jump in 4th quarter earnings.
Thomson Reuters is now forecasting earnings in the first quarter to be down by around 30%, compared to a decline of only 10% predicted at the end of December.
Second-quarter earnings are expected to fall nearly 26% compared to the 2.7% forecast in December.
The big losers in this half will be oil companies with earnings plunging from the rising level in the first and second quarters of 2008.
Financials, led by banks and insurance companies, have dragged the earnings figures down, losing more than $US50 billion in the fourth quarter compared to a loss of $US23 billion in the same quarter the year before (which was a shocking figure in itself).
If the banking sector is taken out of the S& P 500 index altogether, the decline in earnings for the remaining groups would be just around 20%, still a nasty hit.
Reuters said the spread of the slump can be seen from the fact that seven of the S&P’s 10 sectors look like ending the reporting season with falling earnings.
As expected, the materials sector will have the second-worst performance because of the slump in housing and now commercial and industrial property.
Reuters said consumer discretionary group comes in third, thanks to the slump in retail sales and consumer spending in the 4th quarter, which contracted at more than 5% when the surprise build up in inventories is excluded.
As of last week,
