Banks, miners the winners of a resilient earning season

Nearly half all companies bettered expectations and the ratio of beats to misses was the best since 2021, according to AMP chief economist Shane Oliver.

"We've had in Australia three years in a row of falling listed company earnings and finally we've got a return to profit growth," Dr Oliver said.

Two-thirds of companies increased their earnings from a year ago and 56 per cent raised their dividend, usually a sign their earnings would continue to rise, he said.

"So overall ... it was a pretty good reporting season."

IG market analyst Hebe Chen broadly agrees.

The overarching takeaway wasn't necessarily explosive growth but institutional durability, she told AAP.

"Margins held, balance sheets remained fortress-like and guidance, while appropriately cautious, steered clear of the aggressive downgrades that typically cap market rallies."

The results reinforce the growing conviction Australia's economy is absorbing the twin pressures of inflation and restrictive rates far better than initially anticipated, Ms Chen said.

The undisputed outperformer of the half was the banking sector, Ms Chen said. 

Commonwealth Bank and NAB showed resilient net interest margin, a key measure of a bank's profitability, along with disciplined cost hygiene and steady loan books.

Those fundamentals not only justified their premium valuation but turned the sector into a magnet for defensive capital flows, she said.

"We have all been stunned by the big four banks this earnings season," said VanEck cross-asset investment strategist Anna Wu, noting CBA's shares rose as high as eight per cent on the day it reported earnings.

Banks' valuations are stretched but interest rate hikes are boosting their margin potentials, Ms Wu said.

Australia's economy is also proving resilient and loan arrears are dropping.

"I think all of these play into a good short-term outlook for banks," she said. 

VanEck believes 2026 will be a good year for Australia's banks before their valuations become an issue in 2027.

Mining companies also did very well this earning season, mostly on the back of higher commodity prices.

"Gold and critical minerals are two of the probably most talked about buzzwords towards the end of last year and heading into this year," Ms Wu noted.

Gold was changing hands at $US5,135 an ounce on Friday, up around 75 per cent from a year ago, while critical minerals like rare earths, lithium and copper have been surging.

Dr Oliver said mining companies got a boost in 2022 from the Ukraine war but had had some rough years since.

"Mining company profits have gone from about minus 17 per cent a year ago to plus 33 per cent, to a big turnaround there," he said.

Ms Wu said unlike in the financial sector, materials companies are still trading at a very reasonable valuation level.

She and VanEck colleague, senior portfolio manager Cameron McCormack, said the fund manager was a fan of materials and select industrial companies.

The biggest holding in its actively managed exchange traded fund, known by its ticker symbol ALFA, is actually Telstra Group, in part because it is a "very, very strong operator in the Australian market" with strong pricing power, Mr McCormack said. 

Telstra shares performed strongly during reporting season, he noted. 

On the flip side, consumer discretionary companies did not fare as well, with Wesfarmers, Harvey Norman and Flight Centre slipping on the back of results.

Ms Chen said consumer-facing names were bearing the brunt of macro headwinds, with discretionary retailers and travel-linked stocks flagging softening demand and margin compression.

"This divergence highlights a clear squeeze," Ms Chen said.

"While the corporate engines are humming, the Australian consumer is finally starting to feel the weight of elevated living costs."