The Australian stock market’s recent surge has sparked debate among market strategists. Macquarie’s Matthew Brooks believes the S&P/ASX 200 index can continue its upward trajectory, supported by his macro velocity indicator, which combines central bank interest rate policies and global economic performance. The ASX 200 has already climbed 3.5 per cent in the past month, reaching five record highs. Brooks’ theory suggests that with the Reserve Bank of Australia’s recent rate cut and the potential for the US Federal Reserve to follow suit, market momentum can be sustained.
However, Goldman Sachs strategist Matthew Ross raises concerns about stretched valuations. ASX 200 companies are trading at an average forward price-to-earnings ratio significantly above the 20-year average. This comes at a time when the current reporting season is considered one of the weakest outside of major economic crises. Analysts have already downgraded 2026 consensus earnings for industrial firms, suggesting potential headwinds. While earnings beats are near the long-run average, revenue misses are more frequent, with companies relying on cost-cutting measures to achieve profitability.
Wild share price movements have also been a key feature of this reporting season. A significant percentage of stocks have experienced substantial price swings following their results announcements. Even companies that have seen their share prices increase have not necessarily enjoyed corresponding earnings upgrades. The market’s current performance appears to be heavily reliant on momentum, driven by the expectation that central bank actions will provide further support.
Companies like Telstra, Brambles, APA Group and Transurban were mentioned, but no specific information was provided about what these companies do. The momentum, supported by anticipated rate cuts, is likely to keep pushing the ASX 200 higher, but underlying earnings concerns remain a significant consideration for investors.
