Why February is Finance month

The next four weeks will be really important for our hip-pockets, our super balances, the economy, the troublesome Budget Deficit, the potential popularity of the Prime Minister’s Government and our material-related happiness.

What’s ahead is important

It’s a big month! And for a money commentator, financial adviser/educator like yours truly, company reporting season is akin to footie finals time, with the overall collective profits bottom line for our best businesses being like a grand final!

Off to the races!

Right now, the expert number crunchers think earnings of our top 200 companies will be up 5% for the year. However, if the number is better than expected, then the stock market will be off to the races! And even more important will be the outlook statements that the companies’ CEOs will have prepared for the Chairpersons to read out on reporting day.

Also read: Turnbull touts tax cuts for middle-income earners and big business in 2018

Looking good

I have a theory that the better-than-expected economy that is coming together for 2018 should translate into better profits, which would then breed more business investment, create more jobs, higher wages, surging business and then consumer confidence and higher company profits. All this would stimulate a stronger economy producing not only more and more jobs, but plenty of tax revenue for the Turnbull Government and less spending on the unemployed and social welfare because the economy is going gangbusters.

Good for Malcolm

All this would not only make Malcolm’s team more competitive in the popularity polls for the next election, it would also cut the Budget deficit down pushing it towards a surplus. That would mean the credit ratings agencies would not take away our AAA-credit rating. Furthermore, future interest rate rises won’t have to go too high, which could hurt the emerging economic recovery.

A rising tide lifts all boats

As you can see, this a virtuous cycle story, where a good economy creates a better material life for Aussies, beats our deficit/debt problems and sets us up for a few years of prosperity. And I’m hoping it starts this week, with some of our biggest companies set for their profit show-and-tell stories.

CBA is the main game

The big companies to report are Magellan on Tuesday, Rio on Wednesday and Thursday brings the bottom lines for AGL, AMO, Mirvac, carsales.com and Tabcorp. But the biggie is the Wednesday revelations for the CBA!

Also read: How falling property prices could affect Australian bank stocks

CBA will boost market

This is a bellwether stock and if it can produce a better-than-expected number, with all its current challenges, then it will stimulate market confidence. The banks and their share prices have been bashed by the Treasurer with his bank levy, Labor’s Bill Shorten and his call for a Royal Commission and by their own silly behaviour. However, if the improving economy can help any business, it will be the country’s biggest bank.

Bank on the banks

You might not like banks but rooting for their improved performance could be OK for your super and the future of the economy.

So how likely is it that the month-long company profits story will be better than expected? I think it’s a chance, given the big economic stories of the past six months.

Here’s a summary

Below is a summary of the good economic readings that have sustained my positivity:

• The economy grew by 2.8%, which was much faster than the 1.9% expansion in the prior quarter. It was the strongest yearly figure since the June quarter 2016.

• Employment rose for a record-equalling 15th straight month, up by 34,700 in December, after rising by 63,600 in November (previously reported as a rise of 61,600 jobs).

• 403,100 jobs were created over the past year – that’s 33,600 jobs created on average each and every month in 2017. And the strongest 12-month period for job gains in 12½ years. Importantly, the surge in jobs growth is being driven by full-time employment, with gains of 303,400 over the year.

• Job vacancies rose by 2.7% to a record 210,300 in the three months to November. Job vacancies are up 16.1% on a year ago – the strongest annual growth rate in 7 years.

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.3% last week. The short-term outlook for the economy is the brightest since April 2013.

• The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8% in January – a 4-year high. The index now stands at 105.1 (long-term average 101.5). A reading above 100 denotes optimism.

• The NAB business conditions index rose from +13.0 points to +13.2 points in December. The rolling annual average business conditions index was at a 9½-year high of +14.9 points in December.

• The NAB business confidence index rose from to +6.8 points to +11.1 points.

• We are an exporting economy and the International Monetary Fund (IMF) raised its forecast for global economic growth to 3.9% in 2018, up by 0.2 percentage points from its previous projection. If realized, it would be the fastest pace of growth in seven years.

• Dwelling starts (commencements) rose by 0.7% in the September quarter after a 4.3% lift in the June quarter (previously reported as a 1.2 per cent increase). A record 67,067 apartments are currently being built in NSW.

• Retail sales rose by 1.2% in November after increasing by 0.5% in October – the strongest outcome in 4½ years.

On the mend

I could go on but you get the picture — our economy is improving. And if our company profits don’t exceed the 5% growth guess by expert analysts, then I’m rooting for company outlooks for the September quarter to be much more positive.

If that happens, stock prices will spike in February and we will be off to a grand final-like economic celebration for 2018 and beyond.

Go Aussie companies!