As earnings risks emerge, can the energy sector continue to thrive?

US equities were lower in Tuesday trading, closing near their worst levels

At the closing bell, the Dow Jones fell 1.6 per cent to 30,947, the S&P 500 lost over 2 per cent to 3,822 and the Nasdaq dropped almost 3 per cent at 11,182.

At one point , the Dow was up as much as 1.4 per cent, Nasdaq 1 per cent and S+P 500 1.2 per cent. However , the major averages reversed those gains after the release of disappointing economic data.

Markets gave back an early rally after todays weak batch of data added to growth concerns, compounding recent moves in rates and commodities that may signal growth fears rather than any meaningful shift in price sentiment.

The other big concern right now is that consensus earnings estimates are too high in the face of slower growth, still elevated input prices, lingering effects of China Covid lockdowns, geopolitical uncertainty and waning CEO optimism.

With valuations having come down so far, the greatest risk to equities now comes from actual earnings falling short of current expectations. The next leg of the bear market is likely to be driven by earnings recessions, especially in the more cyclical stocks, sectors, and markets.

Overnight & once again the best performing sector was energy. Oil has jumped $2.27 or 2.1 per cent to US$111.84 a barrel. Always counter intuititve to the consumer discretionary sector in particular with the energy sector forecast to post the strongest earnings growth of any of the main industry groups both in the US and globally – however nearly every global earnings recession has seen energy earnings growth in negative territory.

Energy analysts are relying on a “this time is different” mindset as evident in their EPS forecasts driven of course by the energy crisis as a result of the Ukraine/Russian conflict but this ‘this time is different’ scenario has always been a warning sign for investors, no matter what economic cycle we are in – if central banks are successful in reigning in inflation by dampening demand then earnings should follow suit.

What happens within the energy sector will be crucial to watch as earnings revisions play out across the market.

Consumer confidence fell for a second straight month in June to lowest since February 2021 with one-year inflation expectations jumping to 8 per cent from 7.5 per cent, a series high.

Retail stocks fell after the releasee of the consumer confidence data. Bath & body works lost 5.8 per cent.

Lowe’s fell 5.2 per cent, while home depot and macy’s lost more than 4 per cent.

Shares of Nike fell 7 per cent after the sportswear company issued weaker than expected revenue guidance for the current quarter.

Treasuries were little changed after yesterday's weakness that followed last week's rate reprieve.

The US Dollar was firmer on the major crosses.

Currencies

One Australian Dollar at 7:05 AM has weakened since yesterday, buying 69.10 US cents (Tue: 69.34 US cents), 56.72 Pence Sterling, 94.10 Yen and 65.69 Euro cents.

Commodities

Iron ore has gained 4.5 per cent to US$125.00. Its futures point to a 4.1 per cent gain.

Gold has lost $3.60 or 0.2 per cent to US$1821 an ounce. Silver was down $0.31 or 1.5 per cent to US$20.87 an ounce.

Oil has jumped $2.27 or 2.1 per cent to US$111.84 a barrel.

Bitcoin futures down 3.2%. All listed crypto exchanges have been under pressure – with Goldman Sachs downgrading Coinbase shares to $45 from a November price target of $387 – an 88% downgrade

The SPI futures are pointing to 1.3 per cent drop.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 0.6 per cent, Frankfurt rose 0.4 per cent, while London’s FTSE gained 0.9 per cent.

Asian markets closed higher, Tokyo’s Nikkei added 0.7 per cent, Hong Kong’s Hang Seng and China’s Shanghai Composite both gained 0.9 per cent.

Yesterday, the Australian sharemarket gained 0.9 per cent to 6764.

Ex-dividend

There are 47 companies set to trade without the right to its dividend.

Australian Unity Office Fund (ASX:AOF) is paying 3.8 cents unfranked
APA Group (ASX:APA) is paying 28 cents unfranked
Aspen Group (ASX:APZ) is paying 3.5 cents unfranked
Arena REIT (ASX:ARF) is paying 4.05 cents unfranked
BWP Trust (ASX:BWP) is paying 9.27 cents unfranked
CD Pvt Equity Fund III (ASX:CD3) is paying 24.1 cents unfranked
Carindale Property (ASX:CDP) is paying 12.5 cents unfranked
Charter Hall Group (ASX:CHC) is paying 20.47 cents 44.94 per cent franked
Centuria I REIT (ASX:CIP) is paying 4.325 cents unfranked
Charter Hall Long WALE REIT (ASX:CLW) is paying 7.63 cents unfranked
Cromwell Property Group (ASX:CMW) is paying 1.625 cents unfranked
Centuria Capital (ASX:CNI) is paying 5.5 cents 16.36 per cent franked
Centuria Office REIT (ASX:COF) is paying 4.15 cents unfranked
Charter Hall Social Infrastructure REIT (ASX:CQE) is paying 4.4 cents unfranked
Charter Hall Retail (ASX:CQR) is paying 12.8 cents unfranked
Dexus Convenience Retail REIT (ASX:DXC) is paying 5.825 cents unfranked
Dexus Industria REIT (ASX:DXI) is paying 4.325 cents unfranked
Dexus (ASX:DXS) is paying 25.2 cents unfranked
Elanor Commercial Property Fund (ASX:ECF) is paying 2.35 cents unfranked
Elanor Investors Group (ASX:ENN) is paying 4.05 cents unfranked
Elanor Retail Property Fund (ASX:ERF) is paying 3.57 cents unfranked
Forager Australian Shares Fund (ASX:FOR) is paying 7.5 cents unfranked
Gryphon Capital (ASX:GCI) is paying 1.1 cents unfranked
Garda Diversified Property Fund (ASX:GDF) is paying 1.8 cents unfranked
GDI Property Group (ASX:GDI) is paying 3.875 cents unfranked
Goodman Group (ASX:GMG) is paying 15 cents unfranked
Growthpoint Property (ASX:GOZ) is paying 10.4 cents unfranked
Healthco Healthcare and Wellness Reit (ASX:HCW) is paying 2.25 cents unfranked
Homeco Daily Needs (ASX:HDN) is paying 2.12 cents unfranked
Hotel Property (ASX:HPI) is paying 10.3 cents unfranked
Kkr Credit Income Fund (ASX:KKC) is paying 1.5 cents unfranked
Liberty Financial Group (ASX:LFG) is paying 28 cents unfranked
Mirvac Group (ASX:MGR) is paying 5.1 cents unfranked
Newmark Property (ASX:NPR) is paying 2.41 cents unfranked
National Storage REIT (ASX:NSR) is paying 5.4 cents unfranked
Perpetual Credit Income Trust (ASX:PCI) is paying 0.4877 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 0.7689 cents unfranked
Reef Casino Trust (ASX:RCT) is paying 12.33 cents unfranked
RAM Essential Services Property Fund (ASX:REP) is paying 1.4541 cents unfranked
Rural Funds Group (ASX:RFF) is paying 2.9331 cents unfranked
SCA Property Group (ASX:SCP) is paying 8 cents unfranked
Stockland (ASX:SGP) is paying 14.6 cents unfranked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked
Transurban Group (ASX:TCL) is paying 26 8.34
360 Capital Group (ASX:TGP) is paying 1.5 cents unfranked
360 Capital REIT (ASX:TOT) is paying 1.5 cents unfranked
Waypoint REIT (ASX:WPR) is paying 4.51 cents unfranked