T. Rowe Price forecasts earnings recession

recession/equities/fixed-income/T-Rowe-Price/

4 January 2023
| By Laura Dew |
image
image
expand image

T. Rowe Price is neutral on Australia as it believes there are potential earnings downgrades on the horizon.

In a multi-asset outlook, the firm said it was neutral on Australian equities and overweight on Australian bonds, unchanged from the previous month.

Positives for Australia were an expected moderation of rate hikes by the Reserve Bank of Australia this year, having raised rates consistently from May-December in 2022, which would reduce the pressure on yields. The banking sector had also improved earnings which had benefitted the stockmarket.

However, there were negatives in terms of slowing consumer spending, inflationary pressure and a contraction in the housing market.

It said: “The economic slowdown is pointing towards potential earning downgrades. While a China rebound could soften the slowdown, the housing market and commodity prices are poised to negative surprises in the coming months.

“Anticipating a slower economic growth on the back of this hiking cycle, long term yields are likely to trade in a narrow range going forward, with a downtrend bias. The RBA "pivot" could support lower long-term yields.”

T. Rowe Price said it did expect an earnings recession, however, even if it avoided an economic recession as a result of the lagged impact of interest rate rises.

The average decline in ASX earnings during an earning recession was close to 30%.

“Our base case for 2023 is that Australia is likely to experience an earnings recession even if we do not suffer an economic recession. The reality is that the starting point for earnings is at a historically very high level.

“Although earnings have held up reasonably well until now, that’s largely because the impact of the rate hikes that we’ve seen domestically is really only just starting to bite. The real pain will be felt next year when fixed rate mortgages originated during the COIVID-19 period roll off to considerably higher variable rates.”

 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months 4 weeks ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 4 weeks ago

ASIC has suspended the Australian Financial Services Licence of a Melbourne-based financial advice firm....

1 week 5 days ago

The corporate regulator has issued infringement notices to three AFSLs whose financial advisers provided personal advice to a retail client while unregistered....

2 weeks 4 days ago

ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test....

3 weeks 2 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND