INSIGHTS

The international quarterly reporting season has just kicked off, and over the next few weeks this will be a focal point for share investors.

This is a crucial period for the sharemarket, particularly in the US where much of the strength has come from this year.

The S&P 500 has had a stellar run in 2023, rising more than 15 per cent so far this year.

The tech-heavy Nasdaq index has rallied by double that, while the NYSE FANG+ “big tech” index has surged 73.1 per cent.

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Much of the strength has been driven by rising valuations rather than higher earnings, which means it’s been a case of the market getting more expensive.

That doesn’t mean the good performance is undeserved, however.

Optimists would cite slowing inflation and the imminent end of the Federal Reserve's interest rate hiking cycle.

Investors also see earnings growth on the horizon beyond this year, while others believe artificial intelligence (AI) will drive strong productivity gains.

While the positive and negatives are debatable, what’s clearer heading into earnings season is that the bar is now set higher.

That means there's more room for disappointment if companies can't live up to the expectations implied by share prices.

Aggregate S&P 500 earnings are expected to fall 7.2 per cent in the June 2023 quarter, relative to the same period a year earlier.

That would be the biggest decline in three years, when earnings fell more than 30 per cent during the worst of the pandemic.

More encouragingly, analysts expect the June 2023 quarter to represent the trough.

Estimates change over time, but right now aggregate S&P 500 earnings are forecast to increase over the balance of 2023 and into next year.

Revenue growth will be in focus as investors gauge the extent of the slowdown, while margins will be watched more closely than usual with cost pressures having continued to mount.

Banks will find themselves in the spotlight after the events of earlier this year, with the gap between the bigger players and the rest expected to grow.

The technology sector will also get a lot of attention, after the great run we’ve seen in recent months.

The earnings season began last week with reports from PepsiCo, JPMorgan, Citigroup, United Health and Wells Fargo.

Things will heat up further this week, with earnings releases forthcoming from Bank of America, Morgan Stanley and Goldman Sachs, as well as the likes of Netflix, Tesla and Johnson & Johnson.

Beyond that, the big tech companies will report results late in the month and into early August.

Despite some risk of earnings disappointment and unpredictable share price reactions, there are still opportunities to be found for those willing to look through the uncertainty.

The buoyant US market has been pushed along by the stunning gains of a relatively narrow group. However, many other parts of the market haven't risen nearly as much.

While people have been obsessing over AI and how exciting it might be, many other great companies have been ignored and overlooked.

While a little less exciting, some of the laggards offer better value and represent opportunities for investors looking to put money to work.