Rudi’s View: Awaiting The Real World Ramifications

Rudi's View | 10:00 AM

In this week's Weekly Insights:

-Awaiting The Real World Ramifications
-ResMed (Quality) In Focus
-Defensives Tell The Story
-Technology & AI-laggards
-Broader Outlook Remains Up For Debate

By Rudi Filapek-Vandyck, Editor

Awaiting The Real World Ramifications

At face value, investors are treating this year's 'Trump Slump' as your garden variety annual retreat post exuberance-driven all-time highs reached in early 2025.

The numbers speak for themselves. When measured from January 1st, the ASX200 is down no more than circa -2% on Monday, excluding any dividends paid. European markets are up for the year and so are various Emerging Markets including in Asia.

Admittedly, the losses are greater in the US where the Nasdaq, for example, is still down nearly -10% year to date. But then those markets had outperformed the rest of the world multiple times over, not just for the past two years but since the end of the GFC, more than 15 years ago.

In similar fashion, the first downward adjustment for the ASX equally proved significantly more punishing for those stocks that had outperformed locally, including the AI-theme exposed Goodman Group ((GMG)), NextDC ((NXT)), Macquarie Technology ((MAQ)) and New Zealand-headquartered Infratil ((IFT)).

Post the initial turmoil in response to unprecedented US import tariffs --or merely the threat thereof-- markets have become a lot more comfortable with trends in US government communications and news flow.

I worry, however, that investors who are now concluding the worst impact from Trump policies is in the past might still be unpleasantly surprised as the real world impact is yet to show up in economic data and in corporate earnings.

Some market analysts are suggesting consensus forecasts should now be considered cum downgrades with the fresh downtrend potentially lasting a few quarters. This trend has arguably already started in Australia.

See, for example, FNArena's weekly update on Ratings, Targets, and Forecast Changes which clearly shows a skew towards more downward revisions if we exclude temporary exceptions such as Paladin Energy ((PDN)) and Pilbara Minerals ((PLS)).

Monday's update: https://fnarena.com/index.php/2025/04/28/weekly-ratings-targets-forecast-changes-24-04-25/

History suggests if we do experience a noticeable reset in earnings expectations, both locally and overseas, this tends to create a headwind for markets generally and division between companies that suffer downgrades and those that do not.

Currently, consensus in Australia sees the average EPS for the ASX200 backtracking for the third financial year in a row, to -1.1% for FY25.

Consensus forecasts for FY26 and FY27 are suggesting above average growth of respectively 6.3% and 7.7%, but it seems unlikely those numbers will not be affected in the coming six months or so.

By how much exactly will depend on whether the US economy might fall into recession (negative growth) and, if so, how deep and for how long exactly this recession might prove to be.

Equally important: the market is positioned for RBA rate cuts in the months ahead and economists do not foresee negative GDP growth for Australia.

Already multiple fund managers have been spotted who dare to declare the Australian share market a safe haven this year, given the broader context internationally.