A lacklustre earnings season in which many blue-chip companies reported curbed profit growth is leading some to question whether Australia is heading for an economic slowdown.

While dire predictions of an earnings season bloodbath were averted, Morningstar director of equity and credit research John Likos said results were modest, but not spectacular, and the consensus outlook is that softer conditions lie ahead.

The economy may be showing signs of a slowdown, but it appears no one remembered to tell the market. Overall, the Australian stock market had one of its strongest months on record. The S&P/ASX 200 index closed Thursday at 6,169, bringing its February return to 4.9 per cent.

For the 200-odd companies under Morningstar coverage, the simple average price/fair value is 1.07, with the market capitalisation weighted average 1.08. This suggests the S&P/ASX 200 is moderately overvalued.

Likos points to moderate to falling profits from some of Australia's blue-chip companies, a decline in construction activity across Australia, and concerns that weakness in the housing market could lead to a consumer spending slowdown.

Sectors tied to the health of the economy such as housing and retail suffered most. Construction work done across Australia fell further than expected during the December quarter, adding further pessimism to the nation's economic outlook.

This fed into earnings downgrades at building materials suppliers Boral and Fletcher Building as well as commercial landlord Stockland, while stretched household budgets bit into sales of retailers such as Harvey Norman. There were however those who stood firm, JB Hi-Fi and Breville among the few.

Meanwhile, consumer staples gave us an insight to the mood of the economy. Retail trade contracted in February to its lowest level since 2012 as consumer spending dried up. The Ai Group's Performance of Services Index released on Tuesday recorded a second straight month of contraction in the Australian services sector in February.

Woolworths’ first-half profit edged 1 per cent higher to $979 million but food sales growth lagged that of fierce rival Coles. Both companies reported weaker earnings growth, hinting that Australians are spending less at the checkout.

Both real estate classifieds businesses REA and Domain defied the worst Australian real estate downturn in decades, delivering a healthy first-half result. However, more cautious outlooks from management signal the possibility of slowing in the sector.

Hayne pain persists

A Hayne-shaped shadow loomed over the season, with implications reaching far beyond the banking sector. Compensation and compliance costs stemming from the Kenneth Hayne-led royal commission dragged on Commonwealth Bank's interim result, while AMP licked its wounds.

However, not all were similarly affected. Magellan showed its capacity to perform in challenging operating conditions. IOOF narrowly escaped: its stock rose 16 per cent on an unexpectantly good result, but Morningstar analyst Chanaka Gunasekera warned investors that its troubles are far from over.

Smaller and regional lenders were in the crosshairs too, with Adelaide Bendigo Bank citing difficulties ahead.

Meanwhile, in the telecommunications sphere, market favourite Telstra gave shareholders the ultimate Valentine's Day gift. An increase of more than 230,000 Telstra mobile customers – a key base for future monetisation and a first-mover advantage as the telco transitions to 5G, says Morningstar analyst Brian Han. Fibre network services provider Vocus wasn't as lucky, dragged down by poor performance in its business unit and doubts about the National Broadband Network.

In resources, Woodside booked a 32 per cent profit lift and rewarded shareholders with a surprise dividend hike. Rio Tinto, flush with cash from recent sale of its Grasberg copper mine in Indonesia, similarly delivered, reporting its highest annual underlying earnings since 2014. Things were less rosy for the world's biggest miner BHP, which Morningstar's Mathew Hodge says must dig deeper to deliver in the second-half.

It was a mixed-half for Australia's entertainment players. Village Roadshow stole the show, doubling earnings for the half-year as the losses for its rival Ardent Leisure blew out by almost 40 per cent. Nine is back in the picture amid post-merger gains, but Seven Westcopped a profit hit as ad sales plunged.

Market defies slowdown fears

Bank stocks led the market rally following the release of the Hayne final report, while miners also contributed to gains.

However, things may change this week when GDP figures are released on Wednesday.

Car retail and logistics company Automotive Holdings booked the largest one-month stock price increase, with a massive 47 per cent gain, followed closely by search and language dataset company Appen at 46 per cent. Natural beauty company BWX and real estate website Domain were the standout one-day gainers, surging 30.4 per cent and 21.1 per cent respectively.

The biggest falls were recorded by vitamins maker Blackmores at -27.2 per cent, with the share price tumbling following the shock resignation of its CEO and the company’s planned “transformation”, and specialist packaging company Pact Group at -23.2 per cent. Hygiene products maker Asaleo and G8 Education both wiped 11 per cent on their valuations in a single day.

Our experts answer your questions

To help you cut through the noise, identify the winners of this reporting season and seize on local investment opportunities, Morningstar will hold an exclusive Reporting Season Insights webinar via Facebook Live.

Peter Warnes, Morningstar’s Head of Equities Research, will give an overview of the reporting season and discuss what the earnings results mean for Australian investors. Peter will be joined by our senior analysts Brian Han and Mat Hodge to discuss the telecommunications and resource sector results and their implications.

Tune in this Friday and get the investing insights you need to make informed investing decisions.