Big falls ahead for some of Australia's major stocks as they reveal profits

Shareholders in Australia may brace for a volatile few weeks as hundreds of major companies, including Commonwealth Bank, BHP, and CSL, prepare to announce their annual profits. The upcoming reporting season is anticipated to cause significant swings in share prices, depending on whether the results meet or miss investors' high expectations.

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The reporting season is a very good indicator of how the Australian economy is faring.

Analysis indicates that during the previous reporting season in February, one-fifth of companies saw their share prices surge or plunge by over 10% on the announcement day. This level of fluctuation is considered substantial, especially when compared to the years it typically takes for the stock market to achieve such gains. Anna Shelley, chief investment officer at AMP, described the reporting season as a crucial indicator of the Australian economy's health, noting its direct impact on superannuation fund returns, which often have a significant weighting in Australian shares.

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If you think about it, most super funds, ourselves included, have about a 25 per cent weighting to Australian shares.

Market analysts are projecting that Australia's largest 200 companies will have achieved an average earnings growth of approximately 12% for the past financial year. While this figure appears strong and exceeds the market's long-run annual average of about 4.5%, it is heavily influenced by the mining and financial sectors. When these sectors are excluded, the earnings growth rate falls to a more modest 2.5%.

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So it's very important how the companies are going as that affects the returns that you get within your superannuation portfolio.

Adding to concerns, UBS equity strategist Richard Schellbach highlighted a worsening 'downgrade cycle.' He reported that earnings momentum in Australia has turned decisively negative, with profit forecasts being revised lower across all 11 major ASX sectors. This broad-based downward revision, even impacting the resources sector which previously supported positive revisions, raises the bar for companies to outperform during August.

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the strongest aggregate growth rate in four years, and sit comfortably above the market's long-run annual average of approximately 4.5 per cent