Rudi's View | 10:00 AM
By Rudi Filapek-Vandyck, Editor
A Glass Half-Full Outlook
By Rudi Filapek-Vandyck, Editor
Dividends included, the Australian share market gained 3.10% throughout the local August results season, so it must have been one cracker of a performance put in by corporate Australia.
Share price moves dominate investor views and experiences, but we all know there can be multiple factors and drivers impacting.
Even in results season, the main game is not only about corporate earnings and dividends.
New Records in August
Last month, investor judgment wasn't so much about what companies had achieved, but whether there were enough reasons to confidently assume things are getting better.
Two sectors unequivocally said 'yes, the outlook is brightening'. Those sectors are consumer discretionary and contract services providers. Think Harvey Norman ((HVN)) and Adairs ((ADH)), but also SRG Global ((SRG)), Macmahon Holdings ((MAH)), and numerous others.
Similar positive signalling came from builders and property developers, but mostly in relationship to domestic markets, not if the main course is the US.
This discrepancy explains the opposing share price responses between Stockland ((SGP)) and Wagners Holding Co ((WGN)) on one hand and James Hardie ((JHX)), Reece ((REH)) and Reliance Worldwide ((RWC)) on the opposing side.
Apart from US headwinds, which also hit several companies in the healthcare sector, persistent sluggish dynamics in Victoria and in New Zealand continued to feature.
Contrary to share prices pushing the ASX200 to a new all-time record high above 9000 towards the end of the season, downgrades to earnings forecasts have dominated the month.
Consensus forecasts placed the average EPS at minus -1.8% pre-August and by the end of the month that number has shrunk to -3%.
All in all, August results have shaved off around -1% from FY26 forecasts too, with consensus now projecting 4.5% growth ahead for the new financial year.
But share prices generally and the major local index specifically moved in the other direction; up. The end outcome is the Australian share market's forward-looking Price-Earnings (PE) ratio ended August at 19.9x, a multiple usually reserved for US equities.
No double-guessing why market watchers and commentators are feeling increasingly uncomfortable with the market's relentless uptrend. Where have all the earnings gone? Arent they supposed to underpin this next bull market?
In Anticipation Of Better Times Ahead
Negative, suggest strategists at Macquarie, share market momentum is being fed more by general liquidity and by the prospect of more rate cuts.
Certainly, such factors are supportive too, as does the fact US indices keep setting fresh new record upon new record this year.
I'd also add the importance of portfolio positioning and of general sentiment.
Previously, the share market's uptrend had predominantly been the prerogative of large caps and of Growth stocks, AI-related or otherwise.
The Small Ordinaries, for instance, had underperformed the ASX100 for four years in a row (2021-24) and investors clearly were fed up with the narrow basket of continuous Winners and looking for a broader base to take this market to the next level.
Viewed from this angle, August delivered in spades. The Small Ordinaries surged 8.18% during the month (total return 8.41%), leaving all other indices at a significant distance.
Over three months this index is up 11.84%, over six months it's up 15.13% and over twelve months the gain has now extended to 20.15% (23.40% including dividends).
Small caps are back in vogue. And so are many of the stocks that could not attract much attention post-2022.
How better to illustrate this reversal in market momentum than through the 60% rally for shares in IDP Education ((IEL))? Since late 2021 that share price had only known one direction, and it was down.
Financials and Materials performed well, with gold miners in particular stealing the show, but lithium's comeback didn't falter either.
As portfolios rotated, somebody had to lose out. No surprise, given the previous lead in the narrow based uptrend, Technology became August's main victim, followed by Healthcare and Staples.
Shares in Vault Minerals ((VAU)) are up by more than 40%, closely followed by gains in 29Metals ((29M)).
It wasn't all black and white though and individual performances did give companies the opportunity to sail against the broader trends.
Note the big jump in the share price of NextDC ((NXT)), for example, but also the sell-off in response to CommBank's ((CBA)) result and to Bank of Queensland's ((BOQ)) market update, while numerous turnarounds and promises failed to materialise, as is usually the case.
This season's big disappointments included AGL Energy ((AGL)), Amcor ((AMC)), CSL ((CSL)), James Hardie ((JHX)) and Woolworths Group ((WOW)), but also Audinate Group ((AD8)), Avita Medical ((AVH)), Domino's Pizza ((DMP)), Ebos Group ((EBO)), EVT Ltd ((EVT)), HMC Capital ((HMC)) and DigiCo Infrastructure REIT ((DGT)), IPH Ltd ((IPH)), Ramsay Health Care ((RHC)), ReadyTech Holdings ((RDY)), and Sonic Healthcare ((SHL)).
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