Upcoming profit season

Investors know that the long-term driver for growth in sharemarkets is profit growth. Therefore with markets fluctuating over the past 18 months, we look to the upcoming reporting season in both the United States from mid July and Australia from mid August, to provide us with a better understanding of what is transpiring in the corporate world.

As financial markets are forward-looking mechanisms and prices discount the expectations of investors in the future, we can examine the outlook of a particular company, sector or overall economy based on the statements by corporate executives.

With recent macro-economic fears and natural disasters disrupting supply chains, some analysts are now questioning whether this reporting season will contain a more subdued outlook, given the already weak consumer spending and sentiment.

There are several important factors that investors will be anticipating, which may affect the general mood of sharemarket participants, including:

• profit margins and whether labour and rising commodity/input costs have had a detrimental
  impact on their net profit;
• how the banking sector is dealing with low credit growth;
• trends in consumer sentiment in light of the headline troubles in Europe; and
• the clarity and confidence in which corporate executives describe their company’s outlook.

If we receive positive news regarding these points, markets will more than likely increase. However, if not, brace yourselves for continued choppiness.