The next few weeks may be a little volatile — even stressful — for people who own shares.
It's not necessarily because we're expecting Donald Trump to make some grand announcement about "ending" another war, followed immediately by him making another threat to "destroy" Iranian civilisation.
Though we can't completely rule that out, of course.
Hundreds of Australian companies, including Commonwealth Bank, BHP, CSL and some of the biggest names on the ASX, will be revealing how much money they earned over the past year.
You can expect to see huge swings in some of these companies' share prices, depending on whether their results exceed or miss investors' sky-high expectations.
In fact, one-fifth of companies that reported their profits during the last reporting season, in February, saw their share price surge or plunge by more than 10 per cent on the day of their announcements, according to analysis by CommSec.
That's a staggering figure when you consider it normally takes years for the stock market to make such gains.
"The reporting season is a very good indicator of how the Australian economy is faring," AMP's chief investment officer Anna Shelley said.
Anna Shelley says reporting season is a good indicator of how Australia's economy is doing. (ABC News: John Gunn)
"If you think about it, most super funds, ourselves included, have about a 25 per cent weighting to Australian shares.
"So it's very important how the companies are going as that affects the returns that you get within your superannuation portfolio."
A worsening 'downgrade cycle'
On average, market analysts are forecasting Australia's largest 200 companies will have grown their earnings by about 12 per cent in the past financial year.
At first glance, that sounds like an outstanding result as it would be "the strongest aggregate growth rate in four years, and sit comfortably above the market's long-run annual average of approximately 4.5 per cent", according to UBS equity strategist Richard Schellbach.
But when profits from the mining and financial sectors are excluded, that earnings growth rate falls to a meagre 2.5 per cent.
But often investors treat the "backward-looking" profit and revenue figures that companies announce as a bit of ancient history.
Richard Schellbach says earnings growth will be weak, when resources stocks are excluded. (ABC News: Chris Taylor)
Many people instead pay closer attention to the companies' "forward guidance" — or commentary on how the business is likely to fare in the next six to 12 months.
On that front, Mr Schellbach has some bad news.
"Earnings momentum in Australia has turned decisively negative," he said.
"Profit forecasts are now being revised lower across all 11 major ASX sectors, including resources, which had previously provided much of the market's positive revision support.
"This broadening downgrade cycle raises the hurdle for companies to outperform during August.
"Results will need not only to meet reported-period expectations, but also to provide sufficient guidance confidence to arrest further reductions to forward estimates."
'Tough slog' over the next six months
Jun Bei Liu says high cost of living will affect company profits. (ABC News: John Gunn)
"This will be the first reporting season that we will see the flow-on impact from higher interest rates," Ten Cap's lead portfolio manager Jun Bei Liu told ABC News.
Ms Liu said Australia's companies would also reveal the extent to which the Iran war and higher oil prices had driven up their costs of doing business.
She is also on the lookout for signs of how much confidence has been affected — for businesses and consumers — following the Albanese government's decision to increase capital gains tax and significantly restrict negative gearing for property investors.
"This reporting season, we expect domestic-facing businesses to give a much more conservative outlook," she added.
Mr Schellbach also echoed those sentiments.
"Although the consumer is not collapsing, the rate hikes, tax changes and souring sentiment around the housing cycle have really changed the story," according to the UBS equity strategist.
"I expect the trading updates of the companies that are really exposed to the housing cycle will point to the fact that they've seen activity levels soften materially."
JB Hi-Fi, Nick Scali, Baby Bunting, Temple & Webster and Breville are some of the retailers that will be reporting their earnings in the coming weeks.
Australian consumer sentiment has dropped to its weaket level in many years. (ABC News: Billy Cooper)
Even if REA Group, Mirvac and Lendlease post strong results for the past year, they may still warn of weak trading conditions ahead.
Given property is the biggest asset, and source of wealth, for most people, falling house prices have a major effect on consumer sentiment.
This generally leads to consumers cutting back on spending, which is bad for business and has a flow-on impact across most sectors of the ASX.
Which other companies will fare well… or poorly?
Last week, Rio Tinto reported its half-year underlying earnings jumped 43 per cent to $US6.85 billion.
This was the miner's best result in four years, thanks to higher commodity prices and a surge in profits from its copper division.
Rio Tinto reported its best result in four years last month. (ABC News)
Copper demand has soared in recent years due to the energy transition and high demand from US tech giants like Amazon, Microsoft and Google, which are racing to build massive AI (artificial intelligence) data centres across the world.
Its rival BHP is a much larger copper miner and is similarly expected to announce strong results on August 18.
"Most people are expecting to see stronger results out of mining companies, and perhaps some softer results out of companies like banks, where the housing downturn is starting to take effect there," said AMP's Anna Shelley.
That is perhaps why BHP, with a market value of $307 billion, has recently overtaken Commonwealth Bank (CBA) to become Australia's most valuable company.
CBA, the nation's largest bank, will announce its full-year results on August 12, while its competitors Westpac, NAB and ANZ will provide quarterly trading updates.
Oil companies and refiners like Ampol, Santos and Woodside Energy have been some of the biggest beneficiaries of much higher oil prices, and are likely to reveal strong results and trading updates over the next few weeks.
Ten Cap's Jun Bei Liu is expecting "mixed" results from the nation's healthcare companies due to their customers' cost-of-living constraints.
"Cost of living is hitting the likes of Cochlear's implants as well as quite a lot of pressure in terms of albumin sales for CSL," she said.
But she is feeling "most excited" about industrial stocks, data centres and businesses in the AI supply chain such as the copper miners.
NextDC, DigiCo Infrastructure, Goodman Group, Macquarie Technology and Megaport are some of the data centre companies that are listed on the ASX.
"We're probably more focused on a lot of the companies that provide the cabling, the processing equipment from a technology point of view, the cement, the energy and even the financing [to data centres]," Mr Schellbach said.
"So there's many different channels that feed into the data centre investment cycle in Australia, and they really are in a sweet spot right now to deliver strong earnings growth."
What to expect beyond reporting season?
Looking ahead, market professionals are divided on where markets are headed.
Ms Shelley said, "the backdrop generally is not as strong as it was".
"There's a lot of concerns obviously around the continued elevation of the oil price, and I think that will weigh on consumers. That uncertainty in Iran has yet to be resolved."
On the other hand, Ms Liu believes "some sectors might be going through a bit of issues such as the likes of our banks, but the rest of the market absolutely is going to outperform".
Mr Schellbach did not mince words.
"From here on forward, we see a pretty tough slog for markets and the economy over the next six months."
In the meantime, here's a list of ASX companies due to release their financial report in August.
