Australian investors should brace for a volatile February reporting season, with Morgans anticipating significant single-stock movements. The brokerage firm highlights that the upcoming period could see market reactions disconnected from underlying fundamentals. Last year’s February and August seasons were marked by extreme volatility, with over half of reporting companies experiencing share price movements exceeding 5 per cent on their reporting day. Morgans analysts suggest this trend is likely to continue.
After several years of stagnant earnings, the market expects a rebound in earnings per share (EPS). Forecasts indicate a rise from -1.2 per cent in FY25 to 8-9 per cent in FY26. This growth is expected to be driven primarily by the resources sector due to rising commodity prices. Healthcare and consumer staples are also expected to contribute to the broader economic recovery. However, Morgans cautions that market participants may react strongly to any earnings misses.
The firm anticipates that companies failing to meet expectations will face more severe penalties than those exceeding forecasts, particularly in high price-to-earnings (PE) sectors. These sectors include banks and quality growth stocks, which are currently trading well above their long-term averages. The firm believes that short-term price fluctuations are likely to be amplified by passive, quantitative, and high-frequency trading activities, which can push stock movements beyond what fundamental changes would justify.
Morgans advises investors to prepare for increased volatility and avoid crowded trades. The firm recommends capitalising on opportunities where result-day movements do not align with medium-term valuations, potentially offering strategic entry or exit points. Investors should focus on long-term value rather than reacting to short-term market noise during this reporting season.
