Market-update-Stephen-and-Glen-February-2024
14 March 2024

February 2024 Market Update & Video

Global equity markets continued their march higher in February, supported by a robust US company reporting season, with the global MSCI World Index (in AUD) finishing up +4.3% for the month. The gains were supported by figures showing that US companies are generally managing cost inflation better than expected. In fact, approximately 70% of the US S&P500 companies that reported beat analyst consensus earnings expectations.

Here in Australia, our local company reporting season was more mixed. This was reflected in more muted domestic share market returns for the month, with ASX200 Accumulation index finished up +0.8%.

Bond yields in the U.S and Australia continued to rise over Feb, as both the Fed and the RBA adopted a more hawkish tone on the timing and pace of potential interest rate cuts. This represents a considerable walk back by markets from the hope of faster rate cuts we saw in late calendar 2023.

Australian Company Reporting Season

The February 2024 Australian reporting season was a largely indifferent reporting season overall, adding support to the market’s long-held view that the ‘consumer is still slowing, but not collapsing’. Earnings downgrades averaged approximately -0.5%, not a hugely concerning figure. However, we saw quite a degree of disparity within sectors. Examples include Woolworths and Coles/Wesfarmers which seemed to have very different experiences, whilst still subject to the same macro forces.

Cost management seemed to separate most of the winners from the losers. It is an acute challenge for companies when wages are growing at growing at over 4%, and one not faced by many management teams in recent times. Strong cost management was evident at Wesfarmers, Treasury Wines and Amcor, and is an important positive indicator on company culture.

While retailers performed strongly, they remain on peak multiples facing a weakening economy in 2024, hence we remain wary of adding further exposure at this point. However, fiscal support (for instance stage three tax cuts) will remain supportive in the short-term.

  • In terms of stocks, below are some examples of positive standouts:
  • Cochlear: Circa-15% unit growth, 20%+ revenue growth. Strong tailwinds for this stock. Risk factors include CMV vaccine, which is heading into phase 3 trials later this year, though we would likely see this as an opportunity to accumulate more stock.
  • Wisetech: 20%+ revenue growth ahead of expectations. Altium’s takeover drove up all tech names in February.
  • Treasury Wines: Navigated a potential banana skin as global wine consumption drops, however cost discipline and some helpful commentary around the DAOU acquisition helped propel the stock.
  • HUB: Strong revenue growth continuing to propel the stock forward.

On the other hand, the market took these results a little poorly:

  • NIB Holdings: Nothing to note in the result, with earnings in line, though stock was notably down 10% over February, likely resulting from a large institution exiting.
  • TPG Telecom: Balance sheet risks are overwhelming what was a reasonable operational result, with mobile subscription performing well. Balance sheet repair via asset sales, or refinancing, will be particularly well received when it occurs.

Real Estate, Infrastructure, Energy and Banks generally suffered from earnings downgrades, while IT, Insurance, and Financials had their earnings upgraded.

The chart above shows changes to forecast to company earning by sector post the Feb 2024 reporting season. Source: Refinitiv.

Quarterly Investment Team Video Interview

If you’re interested in further commentary on financial markets, please have a listen to the below video interview between Stephen Kostarelas, one of our Principal Wealth Advisers at The Wealth Designers, and Glen Holder, from Resonant Asset Management, who sits on The Wealth Designers’ Investment Committee.

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