UPDATE: Just days before the start of earnings season, Macquarie Group Ltd (ASX: MQG) is sounding alarms about a significant downturn in ASX earnings. Analysts predict a steep 3% decline in aggregate earnings for FY25, marking the third consecutive year of falling profits, which could lead to a volatile month for investors.
According to Macquarie’s latest report, the impending earnings season is expected to be anything but favorable. The broker emphasizes that earnings are forecast to fall in a climate where the market price-to-earnings ratio has surged to 20x. This scenario sets the stage for potential punishment of companies that miss their targets, creating an urgent atmosphere for investors looking to navigate the tumultuous landscape.
In its analysis, Macquarie highlights several critical areas of focus for this earnings season. The firm will closely monitor management outlook statements for signs of recovery, the management of tariffs, and the tangible benefits derived from AI investments. The report states,
“In results, we will be focused on: i) outlook statements for signs of improving activity; ii) how tariffs are managed; and iii) more concrete data on the productivity and efficiency benefits of AI investments.”
Interestingly, Macquarie predicts a significant rotation among investors, indicating that this season will not see a shift from banks to miners, but rather from banks to healthcare stocks. This potential shift could favor companies like CSL Ltd (ASX: CSL) and ResMed Inc. (ASX: RMD) as prime beneficiaries.
As the earnings reports roll in, Macquarie has identified several ASX shares that could deliver positive surprises. Notable mentions include Challenger Ltd (ASX: CGF), Hub24 Ltd (ASX: HUB), Pinnacle Investment Management Group Ltd (ASX: PNI), Qantas Airways Ltd (ASX: QAN), Telstra Group Ltd (ASX: TLS), and Woodside Energy Group Ltd (ASX: WDS).
Investors are advised to stay alert as the earnings reports begin to unfold, with analysts expecting that conservative guidance may reset expectations lower. This could further heighten market volatility, especially in the wake of the anticipated +2.4% rebound in FY26, which may also prove weaker than hoped.
In light of this urgent update, Macquarie suggests that investors consider purchasing Growth and Quality Cyclicals in the event of sell-offs, highlighting the potential for future growth despite the current climate.
As earnings season approaches, the financial landscape is poised for dramatic shifts. Investors are urged to keep a close watch on earnings reports as they begin to trickle in, ready to react to this rapidly changing environment.
