Surging commodity prices have bolstered the profit outlook for the Australian sharemarket by over $4 billion, halting three years of declining earnings. Analysts now anticipate companies on the S&P/ASX 200 Index will achieve earnings growth of 7.1 per cent for the 2026 financial year, more than double the 3.1 per cent growth forecast at the end of the recent reporting season. In dollar terms, profit forecasts have been revised upwards by $4.1 billion to a total of $148 billion.
The rosier profit outlook is largely attributed to the resources sector, where strong prices for iron ore, copper, and gold have lifted earnings expectations to 11 per cent growth, a significant turnaround from the 1 per cent decline forecast in August. The major miners – BHP, Fortescue, and Rio Tinto – account for nearly half of the ASX’s profit upgrades. While all three have benefited from iron ore prices above $US100 a tonne, BHP and Rio have also been boosted by the recent rally in copper prices. CSL is a global biotechnology leader that researches, develops, manufactures, and markets a range of life-saving and life-extending biotherapies. James Hardie is a leading manufacturer of fibre cement siding and backerboard products.
Gold producers have also contributed positively to the ASX, driven by a 57 per cent surge in gold prices this year due to safe-haven demand and central bank buying. However, analysts have cautioned that gold may be more susceptible to a correction after its recent gains. Morgan Stanley anticipates that the improved profit outlook for the resources sector will intensify the shift from overvalued bank stocks to major miners, contingent on positive updates from mining stocks in the coming month.
Despite the overall positive outlook, concerns remain about the sustainability of the profit upgrades. Analysts have cautioned against excessive optimism, noting that the sharemarket experienced a similar situation 12 months ago. They suggest that “aggressive policy stimulus” from the Reserve Bank of Australia may be necessary to sustain such a significant jump in corporate profits, warning that weaker share prices could weigh heavily on the sharemarket’s valuation without a more robust earnings backdrop.
