Markets downgrade their guidance for FY20 reporting season

The past 30 days have been eventful for investors. Global stock markets declined for 8 days in a row between 21st February and 1st of March 2020. This was mainly caused by the escalation of Coronavirus and its economic impact outside of China, namely Italy, South Korea and Iran, leading fears across the market. Aussie markets were down by 10%, while S&P 500 declined 11.5%, which ranks as the third-largest weekly decline over the last 20 years. This wiped $3.2 trillion from the value of companies in the US index.

Since the market sell-off caused by fears on the virus outbreak, analysts have been cutting their FY20 estimates as shown in Table 1. As a result, the S&P/ASX 300 earnings estimates for the next reporting season have fallen by 3.48% (since last month).

Source: Refinitiv Eikon

The prospects of Australian tech stocks have dimmed significantly since the virus outbreak, with analysts dropping their earnings estimates by a whopping 47.74%. It seems like the supply chain disruption and sluggish growth caused by preventive measures to reduce the virus spread have substantially diminished the outlook for the high growth sector. Steep declines in commodity prices following the coronavirus outbreak are expected to affect the energy and materials sector, which have seen their earnings estimates reducing by 4.32% and 4.19% respectively. Travel and supply chain disruptions are expected to have notable impacts on FY20 earnings for the consumer discretionary and industrials sectors. As a result, analysts have reduced their earnings estimates for both sectors by 5.06% and 3.72% respectively. We also observe that defensive sectors such as utilities and real estate are universally forecasted to have certain resilience towards a tough economic environment, with only earnings estimate decline of 1.52% and 0.13% respectively. With the widespread panic heavily tied to a medical issue, it is no surprise that the broader market would expect a boost for the health care sector. Analysts have increased their earnings estimates for the next reporting season by 2.14%, signalling a positive mid to long term outlook for Australian health care stocks.

S&P/ASX 300: Changes to next reporting season earnings estimate (since 30 days ago) by sector

Source: Refinitiv Eikon