Rudi’s View: Beats, Misses And Early AI Signals

Rudi's View | 10:00 AM

Early signals from August results combine positive outcomes with negative signals. Meanwhile, in the background, AI deployment is advancing.

By Rudi Filapek-Vandyck, Editor

With the FNArena Corporate Results Monitor still only including 64 result releases, it remains dangerous to draw solid conclusions just yet, but a few early indications should have investors' attention nevertheless.

Forget the idea that analysts' expectations might prove too low, offering obvious opportunities among REITs, discretionary retailers, and construction and building-materials companies.

Instead, we are witnessing moderate forecast downgrades, partly reflecting cautious, if not disappointing, guidance.

Slow to no growth outcomes are being compensated for through capital management and higher dividend payouts.

Domestic Momentum Is Weak

One key worry is that plenty of indications point towards a further softening domestic economy with trading updates from retailers, including JB Hi-Fi ((JBH)) on Monday, suggesting the worst of this year's economic slowdown might still be ahead of us.

In a market that, thus far, finds it difficult to stay in a positive mindset for longer than a few consecutive days, it is not difficult to adopt a bearish view about the near-term outlook.

As Morgan Stanley strategists voiced it on Monday: "Australia is facing an uncomfortable mix of softening growth and persistently high inflation -- an emerging stagflationary backdrop that looks likely to intensify through 2026".

Strategists at Macquarie are a whole lot more optimistic. Their observation is that results to date have consisted of more 'beats' than 'misses' and investors have been all too prepared to reward upside surprises in dividend announcements.

In specific cases where the initial share price response seemed out of sync with the market update, share prices have caught up in later sessions.

Macquarie points to Block ((XYZ)) and Light & Wonder ((LNW)) as examples.

An equally valid example to add is that of ResMed ((RMD)). The market likes to sell down its shares every time a financial result is released (four times a year), but those initial punishments do not necessarily stick around for long.

This time around, the share price is back to where it was before the result release, which is quite the surprise given how fierce the selling pressure was on Friday, August the 7th -- a little over one week ago.

Maybe one of the lessons from the past two weeks is to not take the initial share price treatment as gospel?

Another observation is that underperforming, more cheaply-priced stocks do not by default provide safer-havens in a market looking to punish swiftly and severely.

Stocks like Myer ((MYR)), Premier Investments ((PMV)) and Seek ((SEK)) had not exactly been flavour of the year prior to this month, but all suffered heavy punishment when disappointment became public knowledge.

On Monday, as I write these sentences, the likes of Aurizon Holdings ((AZJ)) and LendLease ((LLC)) reinforce that observation.