Earnings, the primal force driving equities, takes centre stage this week.
The market last Friday broke through 5,000 in the opening minutes and seemingly with some conviction, before quickly hitting the brakes and slamming into reverse – an established trend in recent weeks.
Trepidation leading into the earnings season wasn’t helped by Orica’s minute to midnight earnings downgrade, a 10% whack to profits that saw investors punish the stock on Friday as it slid 13%.
While much has been made of the potential earnings rise from the recent sharp fall in the Aussie dollar, there will only be marginal impact on this year’s earnings results.
The currency really only began its descent in May, delivering just a few weeks of respite to foreign exposed corporations. But there are hopes that the recovery in industrial companies will become evident in the next few weeks, with some analysts predicting earnings growth of up to 5%.
While the investment phase of the resources boom clearly has peaked, there are hopes the major resource groups will be able to turn the corner on the earnings front in the year ahead, given the focus on cost cutting, reducing capital expenditure and working assets harder.
First off the rank for this year's earnings will be listed investment company Australian Foundation Investment Co.
AFIC’s share price has been trading at a solid premium to net asset backing for most of the past year, currently around 5%, as it has ridden the stock market recovery and the improved dividend payouts from its investments (see our video interview with AFIC's chief executive Ross Barker).
Diversified industrial GUD will be keenly watched on Friday as it is one of the first manufacturers to report. Meanwhile Australand, Petsec Energy and Aquarius Platinum are out on Wednesday, OceanaGold is out on Thursday and Korvest is out Friday.