Market Minute: Earnings season expectations vs. reality
A quieter week in markets sees the investment team take a cautious approach on US large caps and Aussie equities.
Transcript:
Hi, I’m Matt Wacher, Chief Investment Officer at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends every Friday lunchtime.
So far this week things have been a little quiet, with even the latest tariff noise going largely ignored. But there are a few key things we’ve noted.
Firstly, over the last week we’ve seen President Trump again notifying countries of the tariff rates he will charge them. While Australia has escaped without a significant impact, tariffs are now being used as a geopolitical tool against India and Brazil, who both buy significant amounts of Russian oil. The markets have really seemed to shrug off this latest bout of tariff noise to focus on other things.
One of those things is the economic growth situation. Late last week we saw some weaker US employment numbers and some big revisions to the previous month’s numbers as well. This led to a short term selloff in US markets. Now the Federal Reserve has been steadfast in not wanting to cut rates in the face of potential tariff-led inflation. Now, potentially, they may need to pivot to prop up economic growth and support the weakening employment picture.
The other area of focus has of course been earnings here in Australia and the US. In the US big tech names such as Microsoft (NAS:MSFT) and Meta (NAS:META) have delivered blow out earnings while the likes of Amazon (NAS:AMZN) have missed the lofty expectations the market set it.
In Australia, not dissimilar to the US, the big earnings season question is whether results can meet the high expectations already priced into the market. At current levels, there’s little room for error, especially with geopolitical/macro risks looming.
Overall, it has been a reasonably quiet week in markets. We continue to be cautious on US large caps and Australian equities, which are getting expensive again, and prefer some of the emerging markets, the UK and more defensive sectors like healthcare.
And finally, no doubt mortgage holders in Australia will be waiting for the next RBA meeting next week to see if the reasonable inflation numbers we have seen prompted a re think from the RBA and the delivery of another 2025 rate cut
That’s it from me this week, we’ll see you again for another update next Friday.