OPINON: When forward orders turn negative, earnings and employment are usually not far behind. Macquarie says investors need to stay defensive.
? Macquarie Research says investors should be careful about ditching the defensive titans of the ASX, such as Telstra, Coles and CSL, warning a key indicator of imminent earnings pain has just started flashing red.
Aggregate earnings per share estimates for the ASX have already fallen about 7 per cent since their peak in July last year, and are down 3.3 per cent in June, suggesting the cracks in earnings confidence are starting to show.“We have seen some more downgrades since mid-May. While some are due more to margin pressure, this will only get worse as demand slows and firms find it harder to pass on higher costs,” Macquarie says.
On the other hand, sectors such as health, telecommunications, consumer staples and utilities experience either earnings upgrades or below-average downgrades.; supermarket operator Coles Group; the aforementioned CSL; pub and bottle shop giant Endeavour Group; healthcare group Resmed; Treasury Wine Estates; and utilities giant Telstra.
But Chanticleer would note that Macquarie’s magnificent seven buy ideas have delivered an average year-to-date gain of just under 10 per cent. These stocks are not necessarily cheap, and they’re trading in a market that still looks expensive in aggregate.
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