Reporting season really showed how there is "a rocky road ahead" for the Australian economy and ASX shares.
That's according to Datt Capital chief investment officer Emanuel Datt, who reckons whether the country technically descends into recession is largely irrelevant.
"The message we take from the current reporting season is one of unevenness in opportunities and obstacles to performance going forward," he said.
"Labour shortages, inflation and an increasing cost of capital are three of the most visible takeaways."
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Labour shortages strike some industries worse than others
But not all stocks are built the same.
It's a simple reality that some sectors are better placed to withstand tougher economic conditions than others.
"Capital intensive industries such as mining have an advantage in terms of being able to support higher salaries and accordingly appear to be attracting staff from other sectors, albeit at a higher cost than usual," said Datt.
"Labour intensive industries such as logistics, construction and contracting, continue to struggle with high labour costs and lower than typical productivity."
A shortage of workers is still hurting service industries and smaller companies that rely on a casual workforce.
"Though with international student numbers and immigration rising, it is providing relief to these sectors after a problematic three years."
Which stocks can fight inflation?
Reporting season also showed inflation in supply costs is striking ASX-listed companies hard.
"On the capital front, significantly increased interest rates, along with further projected rises, are likely to continue to adversely affect the cost of business funding."
Considering all these headwinds, Datt noted that two S&P/ASX 200 Index (ASX: XJO) businesses exceeded earnings guidance during the February reporting season: Woolworths Group Ltd (ASX: WOW) and QBE Insurance Group Ltd (ASX: QBE).
Both those companies possess the ability to pass on increased costs to their customers, thereby maintaining their margins.
"Limited ability to pass on costs due to shrinking discretionary spending power is a further squeeze from another direction for many businesses particularly in the consumer sector."
The turbulent environment that investors face in 2023 calls for a more active management of stock portfolios, said Datt.
"In our view, the domestic investment scenario is less likely than ever to favour a passive approach in the near to medium term."
