Reporting Season Positive – Future Headwinds

With the August reporting season, now closed overall the results were not as bad as expected. Most companies managed to cope with the rising cost and slow supply chains, with an underling demand for products and services, however, this maybe about to change.

The expectation is the central bankers will continue to employ tightening policies for longer while inflation remains elevated. We expect to see interest rate continue to raise to curb inflation which we expect will have an impact on the average consumer. The expectation is that a recession is still on cards and may see companies review down they forecast earnings heading into December.

Housing data out for August confirms that the housing sector has recorded the single monthly house price declines since 1983. With the RBA set to pre-emptively hike interest rates by 50 basis points for the fourth month in a row. The drop in housing prices is due to the reduction in purchasing power as the RBA increase the cost of borrowing.

We expect that the next six months will be tough for the market and investors. With COVID in China, war in Europe, food and energy crises and record fiscal tightening we expect companies will review their earnings as consumers start to reduce spending.

We continue to hold investments in the materials, financials, insurance, and health sectors. There is opportunity in the top 50 shares which are trading at a discount and paying solid dividends. For income investors we are cautious of the current high payout ratios of some of the blue chips and expect to see cuts to dividend over the coming months.

Newsletter

September 2, 2022

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