The ASX200 continued its stellar run so far in 2023, finishing up 0.86% last week, its 5th consecutive week of gains. Healthcare-led gains, climbing 4.81%, followed closely by a Tech up 4.3%. The materials sector was a drag for the index, down 2.18% following broad-based falls in commodities.
Earnings come through thick and fast over the next few weeks, with reporting season kicking off locally and US quarterly earnings in full swing. So far, half of the S&P500 has reported earnings, with 70% of those reporting earnings above estimates. Despite that, the index is still showing negative earnings growth of -5.3%, according to FactSet.
3 things that happened last week:
- Retail shows a sharp decline
Last week’s retail sales data showed a significant fall in spending, which is surprising to see across a period of the year when consumers are usually free with their spending. For the month of December, retail sales decline 3.9%, following a 1.7% rise in November. It was the first monthly fall for 2022, following eleven consecutive monthly rises. This ultimately shows that rate hikes are having their desired effect, and consumers are finally starting to pull back their spending. Shoppers clearly brought forward their holiday season spending, opting for down trades and bargains around Black Friday.
- Big Tech Earnings: Meta Beats, but Apple disappoints
After a tough start to 2022, Zuckerberg and Co. rounded out the year with USD$32.17 billion in revenue, above Wall Street expectations of USD$31.65 billion. The solid result for Meta (META) was driven by robust advertising revenue as Facebook reached 2 billion users at the end of last year, an eye-watering number that will continue to attract advertising dollars, even if spending is slowing.
On the other hand, Apple (APPL) has been the name investors look to in earnings season to deliver solid results, but they disappointed last week, missing earnings and revenue expectations by some margin. Revenue came in at USD$117.15 billion, around $4 billion short of Wall Street estimates, and was led by a significant decline in iPhone revenue, down 8% year-over-year, the first decline since 2020. For context, Samsung saw a 20% decrease in smartphone revenue, showing it could have been worse.
- A winner and loser last week from the S&P/ASX200
Flight Centre (FLT) shares took to the skies last week, gaining 13.34% following its announcement to acquire UK travel brand ‘Scott Dunn’. Flight Centre will pay $211 million for Scott Dunn, with $40 million in cash and a $180 million placement.
It was a tough week for miner IGO (IGO), with shares falling 7.4%. Despite announcing record EBITDA at AUD$834 million, a 269% jump from 2021, shares fell after weaker than expected Nickel production forecasts.
3 things to watch for the week ahead:
1. ASX200: Reporting season could drive the index to new highs
It’s been a great start to the year for the ASX200, with the index climbing 7%, just shy of record highs. Although the reporting season doesn’t move into first gear until Feb.13, big names like AGL Energy (AGL) and Mirvac Group (MGR) will be handing down results. It’s been a tough start to the year for AGL, with shares down around 5 per cent, after a solid 2022 as electricity prices soared, and now, new CEO Damien Nicks has an arduous task ahead. Estimates are for revenue growth of 25 per cent and earnings of $0.28, but investors will likely focus on its decarbonisation efforts. Mirvac will also be an interesting one to watch given rising interest rates are seemingly waning buyer demand, but this could be offset by Australian borders reopening and growing demand for rental leases. In addition, Australia is in a housing crisis, from shortages to sky-high prices, which could help to preserve too much damage to Mirvac’s earnings.
2. RBA Rate Decision: Unlikely to pause
Australian inflation came in surprisingly strong in Q4 at 8.4% and the Reserve Bank believes this to be the peak, so will this week’s hike be it’s last? The inflation reading may not worry the RBA too much with large temporary shocks in non-essential areas such as travel, up 29.3% in December. On top of this, we are seeing signs that rising interest rates are squeezing consumers already after its record hikes of 300 bps in eight months dampened retail spending, but this may still not be fully felt by households. This will likely mean that a pause will be hotly debated, but another hike looks set to be delivered by Governor Lowe, but the peak of this cycle is in touching distance.
3. Mandatory investment in AU: Disney hands down earnings
Within the last week, Australia has announced plans that streaming platforms such as Disney+ and Netflix will be required to invest in making original Australian content under new laws. The laws come into place as Disney (DIS) hands down its earnings this week (Feb. 9), with operating losses from its streaming offering continuing to swell, weighing on margins. The market also expects Disney to see a net loss in subscribers for the first time ever, not helping investor optimism. Although these new laws wouldn’t mean immense pain for Disney, it does add to production and programming costs that are excessively high. According to the ACMA, Netflix (NFLX), Disney+, Amazon Prime, and Stan spent $628 million on Australian-related content in the 2020-21 financial year. With the new laws, this number looks set to increase, which will benefit the Australian economy but see Disney taking on more unwanted costs.
*All data accurate as of 06/02/2023. Data Source: Bloomberg and eToro
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