Without the significant contributions of AI and technology companies, global markets would have experienced negative earnings revisions in the current year. The global communications sector, for instance, saw an upgrade of 3.1% since the start of the year, following a robust 20.5% positive revision in 2023.
In Australia, the February 2024 reporting season brought to light a modest -0.3% decline in earnings expectations for the S&P ASX 300 Index, suggesting a broad market trend that remains somewhat sanguine. Despite this overall downtrend, the technology sector experienced noteworthy earnings upgrades of +5.2% for the next 12 months. This contrasts sharply with trends from the previous year. Other sectors like utilities, industrials, and discretionary also witnessed positive shifts in earnings expectations. However, energy, communications, and materials sectors faced the largest downgrades, highlighting a significant divergence from global trends, especially in the communications sector where AI has not yet significantly impacted large-cap Australian companies.
The reporting season also saw a diverse range of companies in the top 100 of the S&P ASX making significant positive earnings surprises, indicating varied investor reactions and expectations. This diversity underscores the importance of factors beyond earnings, such as forward guidance and comments from management, in influencing market assessments.
A notable trend during the February reporting season was the preferential movement towards high beta, low quality, or "junk" stocks. This aligns with investor tendencies in "risk on" markets, where higher beta stocks, smaller capitalized stocks, and those with lower profitability or higher leverage outperform their counterparts.
Additionally, a short covering rally was observed among the most shorted securities, outperforming the least shorted by +8.8%. This trend also coincided with a reversal of certain "negative" momentum trades from the previous 12 months, further enriching the complexity of this reporting season's market movements.
