The Australian sharemarket’s robust profit outlook, fuelled by the banking and mining sectors over the past nine months, may be short-lived. Analysts suggest that upcoming company disclosures could reveal the adverse impacts of back-to-back interest rate increases and escalating energy costs, exacerbated by geopolitical tensions. This could lead to a revision of the optimistic earnings forecasts for the S&P/ASX 200.
Since July, consensus earnings forecasts for the ASX 200 have risen significantly, driven by surging commodity prices and the resilience of major banks. Expectations are now for earnings to grow by 13.7 per cent in the 2026 financial year and 10.1 per cent in FY27, a stark contrast to the previous three years of declining profits. However, Morgan Stanley cautions that these forecasts are outdated and likely to be adjusted downwards starting in late April, during the unofficial “confession season”.
The resources sector has been a major contributor to the improved profit outlook, accounting for 65 per cent of the growth in ASX 200 profit expectations over the past year. Earnings for the materials sector are projected to jump 34 per cent in FY26. Investors will be closely watching quarterly updates from mining companies this month for insights into cost increases and fuel supply constraints. The banking sector has also played a crucial role, with expectations for earnings to jump 10 per cent in FY26 and 4 per cent the following year. Commonwealth Bank is an Australian bank that provides financial services. BHP Group is a mining, petroleum, and metals company.
Despite the recent rally in bank stocks, MST Marquee anticipates headwinds for major lenders, including a weaker housing market that could slow down lending. Concerns about high bank valuations persist, with the ASX 200 trading at 17.2 times forward earnings, exceeding its 15-year average. Excluding banks, the PE ratio is closer to the average. According to MST, banks are overvalued for value funds and have a weak profit outlook for growth funds.
