3 March 2025 | Weekly Snapshot

Did you know?

The USA pays US$3.42/gallon for gas, which is well below the world average of $4.70. This gives them an advantage over China, who is paying US$4.40. Australia is paying US$3.91. This gives some interesting insight towards the effectiveness of energy policy and any potential competitive advantages for manufacturing.

Market Movements

The Australian equity market fell 2.0% last week, driven by property (down 5.7%) and tech stocks (down 5%). Softer sales guidance from Amazon (from +10% growth to 5-10% growth) along with softer earnings growth for Nvidia has led investors to reduce their growth expectations for the higher-growth end of the market. This sentiment followed through to Australia’s high growth stocks including Wisetech (down 26%) and Goodman Group (down 11.5%). Domestic banks were able to hold ground amidst this sell-off, with the bank sector up 1.9% for the week.

The USA’s S&P500 index was down 1% for the week with info tech leading the market lower (down 3.0%) for abovementioned growth concerns. The key issue isn’t that growth is moving from strong to negative. Rather, growth is showing some moderation, and this could be leading to some moderation in the valuations. Tesla (down 13%) and Palantir (down 16%) were two examples of this. Financials were again the strongest sector, screening as both relatively undervalued (compared to historic multiples) and with more recent earnings resilience, when compared to the tech sector.

Tariffs stayed in the headlines. Trump confirmed the previously announced 25% tariffs on Canada and Mexico and additional 10% tariff on China will go into effect next week. Trump also suggested that he would broadly impose 25% tariffs on the EU. According to some economists, this could lead to a 0.4% contraction in the EU economies, whilst the US GDP could shrink by 0.17%. French President responded by saying “the EU will have to respond in kind”.

Nvidia reported strong earnings results with Q4 earnings up 72% vs the same time last year. For the coming quarter, earnings growth is expected to moderate to 45%, which is reasonably consistent with company guidance. So, whilst the earnings growth is still amazing, the law of big numbers is inevitably leading to the slower growth rate. Nvidia traded down approx. 5% post the result and is trading on a valuation multiple of approx. 27x next 12 months earnings, as per the blue line in the below chart.

Portfolio Movements

US fourth-quarter earnings season showed 18% earnings growth.

• 97% of S&P 500 companies having reported Q4 earnings results with the blended earnings growth rate for Q4 sitting at a whopping 18.2% and way ahead of the 11.7% growth expected ahead of the reporting season.
• Still, this huge beat hasn’t been able to propel US stocks higher with a lot of good news maybe already priced into US equities heading into the reporting season with the strong gains of 2024.
• It also looks like the Q1 bottom-up EPS estimate for the S&P 500 have decreased by a larger than normal 3.5% during the reporting season on a combination of some lowered company guidance and analysts concerns in the market about inflation and tariffs.

Wisetech reports strong first half but downgrades guidance.

• Wisetech has reported strong first half results with total revenue of $381.0 million, up 17% on 1H24.
• Their leading product CargoWise generated the bulk of that with revenue of $331.7 million, up 21% on 1H24, driven by customer growth including Large Global Freight Forwarder(LGFF) rollouts. Underlying NPAT surged to $112.1 million, up 34% on 1H24.
• There was no further update the on the board issues following the resignation of their non-executive directors.
• Revenue guidance was lowered to the bottom of the range, as was provided in Nov-24. The updated guidance is for revenue of $1.2bn (for 12 months to Jun-25), which is 15% growth on the previous year.

Woolworths reports first half results – Still struggling.

• Woolworths reported another soft first half result with first half profit of $739M, which was a decent miss on the $781.2M expected and below their own guidance.
• Their current trading outlook showed total sales growth of +3.3% in the first seven weeks of H2 FY25, but expects another mid-single digit earnings decline on the prior year.
• Woolworths said it will seek to save $400 million in simplifying its above store support office and assess the shape of the group portfolio, and hinting towards a potential restructure. Their new CEO Amanda Bardwell said “we will be taking the opportunity to assess each individual business within the group and understand how they reach the full potential within three to five years, and that will apply to all of our businesses across the entire Woolworths Group,”

The Week Ahead

• Monday: China; manufacturing PMI, with consensus at 50.3. The previous reading was 50.1. A reading above 50 means growth in the manufacturing sector, whilst below 50 shows a contraction. In the EU, core inflation is expected to moderate to 2.6% from 2.7%. In the USA, the manufacturing index is expected to show a strong number at 50.8, although slightly lower than the last month (50.9)
• Tuesday: Australia: RBA minutes and retail sales, which are expected to show an improvement of 0.3% vs the previous month. China; the beginning of their “two sessions” meeting. China is expected to acknowledge a significant softening in domestic demand, while revealing highly anticipated details on fiscal stimulus aimed at shoring up growth. Beijing is also expected to release its plans for spending on defense and technological development in the year ahead, along with details on private sector support. The meeting will conclude on 11th March.