Q+A: Is the sharemarket about to get a reality check?
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What macro risks are investors facing right now?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer. Investors are grappling with a long list of uncertainties right now globally. There are the on again, off again peace talks in the Middle East and volatile oil prices right through to a raft of new tariffs levied by the US. At home, the Reserve Bank is grappling with inflation. with today's June quarter CPI figures likely to decide or potentially decide whether or not we'll get another rate hike. Meanwhile, we're about to enter earnings seasons for ASX-listed companies. And after the half-year results in February and the full-year results in August last year were defined by huge share price swings for blue-chip companies, investors have a good reason to be a
Where does the market go from here? Remember, this is general information only. You should always seek advice tailored to your circumstances before making investment decisions. Dr Shane Oliver is Chief Economist and Head of Investment Strategy at AMP. Shane, welcome back to Fear and Greed Q&A. Thank you, Sean. Great to be here. I'm exhausted after that introduction, Shane. People just want to get into what you think it was. So we're heading into earnings season. Where does the share market sit at the moment with respect, I suppose, to, we know the energy companies will do well, the resources companies have done well, but what about the consumer stocks in particular?
Well, there it gets a bit more messy. So the expectation is that earnings will rebound. And that expectation was sort of partly engendered by good results back in February. So the market consensus after three years of falling profits, three financial years of falling profits, is anticipating a rise through this financial year and through next year of about 12%. Now, a big chunk of that is coming from the big miners and energy companies, resources, stocks. Whereas if you look beneath the surface, it's not so good. You're looking at numbers around 4% or 5%. I think if you exclude the banks, it's around 2% or 3%. So the market, I guess, or the consensus is that earnings will see a rebound, but it's still fairly subdued if you look beneath the surface.
And a lot of it has to do with swings in commodity prices. And of course, recently, we've seen increasing angst because we've seen three rate hikes in a row in Australia, possibility of another one, depending on what the CPI shows. And that, of course, is slowing down the economy. And on top of that, we've got low levels of consumer confidence. Business confidence is a little bit depressed. As you said, the on again, off again, PEG talks in the Middle East won't help. This might give my age away. It reminds me of the regular reports.
How is the ASX positioned heading into earnings season?
We got through the Vietnam War. It was constant. Peace talks happening in Paris, and then they weren't happening. It went on for years and years and years. Likewise, my wife is Sri Lankan, and I constantly remember the peace talks regarding the battle in Sri Lanka. So this could drag on indefinitely. uh trouble with those the difference with those conflicts of course is that they didn't affect world oil prices and the global economy to the same degree whereas this time around you know there's a lot riding on those peace talks eventually uh leading to some success and so far they haven't so that's a messy uh situation there so i think the market's sort of In some ways, PEs have come down from where they were.
I think we were around 20, 22, 23 times. We've come down a little bit to around 18, 19 times on the Ford PE. That's good. But there's still a bit of vulnerability there if the RBA has to keep raising rates and if bond yields keep rising beyond 5%.
What about the recent capital gains tax legislation which was introduced and the fact that dividend yields don't seem to get, I don't think they're affected by that change in legislation, whereas capital growth will be because the measurement will be different. Does that mean kind of, I mean, the Telstra's, the Commonwealth or the banks, those high dividend yielders will benefit from it, do you think?
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