The first quarter of 2018 saw a return of volatility in the market after a relatively quiet year.
This was sparked by concerns over rising interest rates in the US, as well as a possibility of a trade war between the US and some of its major trading partners.
The imposition of a range of tariffs is both disappointing and a reversal of agreements designed to assist economic progress.
The end of the quarter saw global markets reacting adversely to initial headlines as they considered the possible actions of the relevant players.
Confidence improves, signs of growth
Closer to home, we completed another earnings reporting season. This provided solid results with the outlook improving generally across the board.
The overall positive tone of results continues to reflect improving business confidence and a slow incremental improvement in the wider economy.
Overall, more companies beat profit expectations than missed them, and dividends were largely in line with expectations.
Broadly, Australian corporate earnings showed signs of growth, though they continue to lag their international counterparts.
The sectors that did the best were food products, building materials, healthcare and non-bank financials. The downward revisions predominantly came from mining, consumer staples and banks.
Capital management remained a strong theme during reporting season with investors rewarding companies offering buybacks and special dividends.
Cost pressures re-emerged in the resource sector as increased national infrastructure activity soaks up spare construction capacity and commodity prices increase.
Interest rate sensitive sectors of the market such as real estate investment trusts (REITs) and utilities were affected by the rise in US bond yields.
Consumer-driven sectors of the market were a mixed bag with some companies generating good results and some early signs of wage growth emerging.
Healthcare remained one of the darling sectors of the market, although companies generating offshore earnings did better than locally-focused players.
Increasing costs to the private health insurance industry also had an impact on this sector.
Outlook
With a wide range of market, economic and political issues dominating the headlines we expect market volatility to continue into the next quarter, and possibly for the rest of 2018.
While this will continue to test the patience of investors, we use this opportunity to remind our clients to maintain their long-term focus and not to overreact to short-term concerns regarding any impending crises that may or may not eventuate.
