US EPS has grown 50 per cent on a year ago with the Magnifcent-7 EPS growth rate at 70 per cent (largely driven by Amazon and Alphabet).  While projected 12-month forward EPS has risen from US$287 to US$380 over the year, the PE multiple has eased back from over 23 times to 20 times.

 

The US payrolls data for July showed a loss of 23,000 jobs compared with expectations of an 88,000 gain. There were downward revisions to earlier months as well.  Suddenly, the US labour market no longer looks as strong as appeared a few months ago. We see that wages growth continues to slow, dropping to 3.2 per cent in July. Weaker than expected payrolls for July, together with lower inflation has seen market push out expectations of a Fed hike. As a whole, US economic data pointed to goldilocks conditions where growth is still strong driven by solid productivity and the labour market is okay but not heating up too much to feed into “sticky” inflation. 

 

China continues to grow its exports, up almost 24 per cent over the year. Exports of EV ’s and higher-end tech products remain strong. Korea and Taiwan are also enjoying a strong export performance. The AI theme is strong. Finally, the Chinese PMI data for July was on the soft side, indicating that domestic demand is still very soft.

 

The Australian 1H earnings season had only just started last week with 15 companies in the ASX 200 reporting so far, usually companies with good results report earlier so take the results this week with a grain of salt. Consensus expectations are for profits to be the strongest in four years at 12% annual growth rate, but profits are likely concentrated in mining (from higher commodity prices and booming AI capex) and financial services (from higher deal activities and favourable operating conditions in the past year). Looking forward, rate hikes will bite with slower consumer spending and declining housing momentum in the second half, so profit growth will slow from here especially for banks, consumer discretionary and real estate.

 

Australia’s home price downturn deepened in July, with prices now around 2% below their peak while Sydney and Melbourne have seen larger falls around 5–6%. National prices fell 0.7% in this month, and we expect further weakness given the double whammy of rate hikes and investor tax changes. Home sales volumes have unsurprisingly trended lower, similar to levels seen during the 2022-23 downturn. By next year, national prices are expected to fall around 7% before rebounding as monetary policy eases in the second half of 2027 and the structural supply shortage remains.

 

Global and Australian share markets are likely to remain volatile with the risk of another correction given the resumption of the Iran War and surging oil prices, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. 

 

However, returns should still be okay for the next 12 months thanks to continuing economic growth with recession avoided and solid profit growth.