Weekly recap
What happened in markets
The Australian sharemarket rallied last week, ending 2.3% higher. The market was driven by surging commodity prices as the price of oil rose 4.4%, while gold advanced 2.8%. Additionally, strong sector performance from ten of the eleven sectors also supported the market, with the Materials and Financials sectors the best performers, both gaining 3.2%. In economic news, the latest labour force data showed the economy added 32,200 jobs, slightly less than expected, while the unemployment rate held steady at 4.1%. The data showed the labour market is still tight, which led markets to slightly reduce expectations of a 0.50% rate cut in May to around 62%.
US sharemarkets edged lower last week, attributed to continued trade tensions and hawkish commentary from the Federal Reserve. Both the S&P 500 (-1.5%) and the NASDAQ (-2.6%) were down for the third time over four weeks. Concerns continued to grow after the White House signalled that tariffs on some Chinese goods may go as high as 245%. The other main driver of market sentiment was Federal Reserve Chair Jerome Powell’s cautious tone towards the direction of interest rates, warning inflation pressures may be more persistent due to the impacts of tariffs. However, there were still some bright spots throughout the market, such as Eli Lily & Co who surged 14.7% over the week, after announcing that its new oral GLP-1 drug had successfully completed the first of several phase 3 drug trials.
European sharemarkets rebounded last week, with the STOXX Europe 600 recovering 4.0%. Markets were driven by renewed optimism around US concessions, following the 90-day pause on new reciprocal tariffs and exemptions for key electronics. Key performers included gold, which reached a new high of €2,900, while the Oil & Gas sector jumped 7.6% and Banks lifted 6.5%. In economic news, the European Central Bank cut rates by 25 basis points, however, cautioned the downside risks to growth, highlighting further cuts may be on the table. Siemens Energy AG was among the standouts, advancing 18.7%, after posting a strong Q2 result.
Stock & sector movements
What caught our eye
Earnings seasons are always important to us, providing an opportunity to cut through the noise of the day-to-day market news and get a clear picture on individual corporate earnings performance. With earnings season for US S&P 500 companies now underway, early results offer cautious optimism. With around 12% of companies having reported their quarterly results so far, the S&P 500 is on track to achieve its seventh consecutive quarter of year-over-year earnings growth, currently projected at a solid +7.2%. Historically, companies have exceeded earnings estimates in 37 of the last 40 quarters!
Seven of the eleven sectors are reporting (or are projected to report) year-over-year earnings growth, led by the Health Care, Information Technology and Utilities sectors. On the other hand, four sectors are reporting a year-over-year decline in earnings, led by the Energy, Materials and Consumer Staples sectors. From a company specific point of view, Bristol Myers Squibb, NVIDIA, Gilead Sciences, Amazon.com, and Broadcom are expected to add the most earnings growth of this quarter. With the exclusion of Bristol Myers, all are held within Cutcher & Neale managed portfolios.
This earnings season, investors are likely to be even more watchful than usual, due to the lingering uncertainty around the recent trade policies announced by US President Donald Trump.
While earnings will likely come in quite positive for Q1 2025, the impact of tariffs is creating unpredictability in financial forecasts, reminiscent of market conditions seen in the early COVID-19 pandemic, where the unknown period ahead led companies to withdraw future guidance.
Only a few major companies, such as Walgreens Boots Alliance and Delta Air Lines, have elected to withdraw 2025 earnings guidance to date, citing uncertainties around economic conditions and major pending transactions.
Meanwhile, a number of those that have reported to date have reaffirmed or increased their previous forecasts, demonstrating pockets of resilience in corporate America, as many businesses seem ready to navigate the potential tariff-induced challenges ahead.
When companies report this earning season, it won’t be uncommon to see overly conservative guidance figures, or companies electing to reserve future earnings guidance, because they just don’t have the visibility right now to predict earnings with market conditions changing quite quickly. We expect this will create potential share price over reactions and provide opportunities for us as investors.
Additionally, it is important to note, the US market from a valuation perspective, is not overly expensive. The S&P 500 currently trades on a forward price-to-earnings (P/E) ratio of 19x, slightly below its five-year average. Furthermore, analysts are still forecasting strong overall annual earnings growth of about 10.0% for calendar year 2025, with an even brighter 14.1% projected for 2026. This longer-term optimism suggests confidence in the broader economic backdrop despite the noise the current trade policy uncertainties are likely to have on earnings season announcements over the weeks ahead.
The week ahead
It is a quiet week for economic data locally. While overseas, in the US, new home sales and the Federal Reserve’s Beige Book, which reads economic activity across the Federal Reserve district’s, will be the focal points.
Company Reports
Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.
