Rudi’s View: August Results – Early Beginnings

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Aug 14 2024

In this week's Weekly Insights:

-August Results: Early Beginnings
-FNArena Talks

By Rudi Filapek-Vandyck, Editor

August Results: Early Beginnings

Share price movements are not the most reliable indicator thus far in July and August.

Contrary to what investors might assume, the Q2 corporate earnings season in the US is not a big failure.

Share price weakness over there is more plausibly explained through Gen.Ai scepticism and macro-inspired investor angst. Forced selling because hedge funds and others got burned through the yen carry trade hasn't helped either.

In flagrant contrast with weak sentiment in the first two weeks of August, believe it or not, corporate performances in the US have mostly surprised to the upside, including trading updates and forward-guidances delivered. On data crunching undertaken by S&P Global Market Intelligence, Q2 EPS growth for the S&P500 has improved to 12.03% from 8.17% over the past four weeks.

That's one big jump in defiance of widespread concerns about too high valuations carried by too high expectations.

US financials have thus far led the positive surprise, as well as consumer discretionary companies. The big disappointment is the energy sector. S&P Global's consensus snapshot as per August 9th is shown below.



In terms of general statistics, 77.9% of companies reported have beaten EPS estimates and 62.3% of companies reported have beaten Revenue estimates, with 53.9% beating both EPS and Revenue.

Note how the percentage of EPS beats remains higher than top line beats, with both percentages better than the prior Q1 season.

One thing that stands out is those companies beating expectations are not by definition rewarded for it.

To experienced market observers, this means macro drivers are currently dominating investor sentiment and short-term trends. Add ongoing investor angst about elevated asset prices and it's probably fair to observe corporate earnings have been relegated to the back burner, unless they're well off the mark in a negative sense.

Deteriorating economic indicators might have re-opened the public debate about a recession or not for the US economy later this year, analysts at RBC Capital have spotted no confirmation in transcripts from corporate conference calls with investors these past number of weeks.

Rather, they say, most commentary seems to confirm the US economy is slowing, but so far without any dramatic consequences. Consumer spending appears less impacted at the higher end of society, which is not dissimilar from observed dynamics in Australia and elsewhere. General caution remains directed at the situation inside China. Inflation pressures are abating.

RBC Capital found references to 'uncertainty' and 'risk' have been much lower than in 2016 and 2022. As the Q2 reporting season winds down, RBC Capital analysts report "we remain struck by how solid the overall stats look". Results and forecasts for technology companies have remained positive.

Results In Australia

In Australia, the season for corporate earnings updates is only gradually warming up. An acute shortage in experienced accountants is, apparently, responsible for most local companies releasing their financial numbers late in the month.

On Monday August the 12th, when I am writing these sentences, the FNArena Corporate Results Monitor still shows assessments of 24 updates only. In February, the total number of market updates accumulated to 387 throughout the season. This gives us a good insight into where we stand today, and what is yet to come over the three weeks ahead.


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