Rudi's View | Feb 19 2025
More Beats In Early Feb Results
By Rudi Filapek-Vandyck, Editor
If everything goes to plan, the RBA will deliver its first rate cut since 2020 at Tuesday's board meeting.
Whether this will be supportive of further share market gains remains to be seen as forward-looking equities have, of course, already responded to the local bond market that has made Tuesday's rate cut pretty much a done deal.
Meanwhile, in the background of it all, the public debate has shifted from will they/won't they to how many rate cuts should we expect this year?
The bond market is suggesting at least three and potentially four rate cuts are on the agenda. Plenty of voices around think that's too optimistic. So what happens if/when the RBA cuts and then signals a la Jerome Powell there's no hurry to follow up with another one until more clarity emerges about what's going on in the world generally?
The ASX200 is trading on an average Price-Earnings (PE) ratio of 18.2x which, no matter how one cuts the numbers, remains well above past averages. One comparison is the multi-decade long average which is around 14.7x. The average for the past ten years is around 16x.
In the US too forecasts for the next Fed rate cut are currently being pushed out towards September or beyond. A similar observation can be made about share market valuations over there. The current quarterly reporting season does not carry the same halo as its predecessors from the past 18 months.
Depending on what exactly we focus on, there's an argument to be made US corporate result outcomes thus far have a slight negative skew, without trying to make this a major development in itself. But the Fed is now on pause and there's plenty to worry about in and around Washington, or at least there's plenty of uncertainty.
US equity markets, throughout all their rallies and turbulence, are essentially at their levels from December. This is very different from the picture that dominates equity markets in Europe and in Asia. Even the ASX200 looks to be carving out what looks more of an ongoing uptrend on price charts, culminating into a fresh all-time record high on Friday.
Co-responsible for the local share market's positive performance thus far in February, following on from an already positive January, has been the positive trend in the first two weeks of the local results season. With investor optimism riding high and the domestic economy holding up reasonably well, the first 50-odd corporate releases have, on average, generated much better outcomes than what we witnessed in both results seasons last year.
Despite all the criticism about a share price that cannot possibly be justified, in isolation, the interim release from CommBank ((CBA)) did not sour the mood and financial performances from Ansell ((ANN)), Computershare ((CPU)), JB Hi-Fi ((JBH)), News Corp ((NWS)), Nick Scali ((NCK)), Pinnacle Investment Management ((PNI)), ResMed ((RMD)), SGH Ltd ((SGH)) and Temple & Webster ((TPW)) all turned out better-than-forecast, even if not all have been immediately rewarded for it.
As is also apparent from FNArena's weekly update on ratings, price targets and earnings forecasts ( see: https://fnarena.com/index.php/2025/02/17/weekly-ratings-targets-forecast-changes-14-02-25/ ) adjustments made to analysts' valuations and forecasts have been much larger than downgrades applied.
But here follows the sobering truth: the numbers in Australia thus far are still relatively low and most reporting seasons start off on a positive note. Let's call it the nature of the beast. By early March the FNArena Monitor will contain updates on circa 390 companies. On Monday, when I am writing these sentences, the corresponding number is still only 57.
FNArena's Corporate Results Monitor: https://fnarena.com/index.php/past-corporate-results-analysis/
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