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As the Australian reporting season progresses, two key players in the consumer discretionary sector have handed in impressive earnings reports:
JB Hi-Fi (ASX: JBH) and Nick Scali (ASX: NCK) have both surpassed expectations, showcasing the resilience of a sector many thought would falter under high interest rates.
These strong performances not only reinforce the strength of these companies, but also bring Harvey Norman (ASX: HVN) into focus as the next potential standout.
JB Hi-Fi delivered solid earnings, beating net profit expectations by 3.7 per cent. This strong result, along with a better-than-anticipated special dividend, sent the share price soaring over 10 per cent, reaching a new all-time high.
Nick Scali also impressed with a 26.1 per cent increase in net profit for the full fiscal year and a 15 per cent revenue growth for FY23.
With both companies exceeding expectations in a sector that has outperformed forecasts, the stage is set for Harvey Norman to produce a standout upcoming report, which could present a major buying opportunity in an environment where rapid share price growth is likely.
Harvey Norman’s broad product range, international presence, and significant real estate investments make it more diversified compared to JB Hi-Fi and Nick Scali. This diversification could add further value to the share price, especially if its real estate arm benefits from potential interest rate cuts signalled by governments worldwide—a development that could positively impact property prices.
Notably, Harvey Norman’s share price surged nearly 4 per cent on Monday following the earnings reports from JB Hi-Fi and Nick Scali.
It’s evident speculators are eager to get in before the report is released. As such, I would encourage you to watch this stock closely, as it could emerge as the top pick in this sector and provide some fantastic trading opportunities in the near term.
Best & worst-performing sectors this week?
The best-performing sectors include Information Technology and Consumer Discretionary, both up over four per cent, followed by Financials, up more than three per cent.
The worst performing sectors include Materials, which shed over three per cent, followed by Utilities, down more than two per cent, and, Healthcare, down over one per cent.
The best-performing stocks in the ASX top 100 include Orora Limited (ASX:ORA), up over 29 per cent, followed by Pro Medicus (ASX:PME), up more than16 per cent, and JB Hifi, up over 12 per cent. The worst-performing stocks include Mineral Resources (ASX:MIN), down over 13 per cent, followed by Arcadium Lithium (ASX:LTM), down over 11 per cent and Pilbara Minerals (ASX:PLS), down more than 10 per cent.
What’s next for the Australian stock market?
With the dust settling from last week’s market panic, the All Ordinaries Index saw a resurgence of buyers this week, as it is up more than a per cent. Unsurprisingly, volatility also halved compared to last week, creating an intriguing scenario moving forward.
It’s likely that many investors hit the sell button during last week’s turmoil. Where it gets interesting is whether the subdued volatility this week is a result of buyer absorption from last week’s panic selling rather than uncertainty about the market’s next move.
For instance, the last significant drop in the All Ords occurred on April 19, with a weekly fall of nearly 4 per cent. This was followed by two weeks of subdued volatility, where prices remained confined within the weekly range set during the downturn.
As the market now trades within last week’s range, there’s a possibility we could see a repeat of April’s pattern. If so, we may experience a lull in the market in the short term. The good news is that periods of congestion are often followed by rapid expansion, suggesting the market could become more volatile sooner rather than later and move back towards the previous all-time high of around 8,300 over the next couple of weeks.
While this is a higher probability, keep in mind that we are in reporting season, and if it delivers a significant number of surprises, especially negative ones, falls back down towards 7,900 points could be expected.
Bullish benchmark
Regardless, the future outlook for the All Ords is clear. As long as the market holds above the 7,900 level, it’s a bullish signal.
If the market falls below 7,900 and closes strongly beneath this level, it suggests a shift in market sentiment.
It’s also worth noting that the upcoming U.S. election and hints of potential rate cuts from major global players could fuel the next leg up for the All Ords, so be prepared for some great trading opportunities over the next couple of months.
For now, good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
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