Australian equities experienced a strong performance in July, climbing 2.4 per cent, driven by a notable rotation of investments out of the banking sector and into previously underperforming sectors such as health and industrial resources, according to Macquarie’s latest equity strategy note. This shift indicates a change in investor sentiment as they seek opportunities in different market segments.
The health sector led the gains, surging 8.7 per cent for the month, primarily fuelled by CSL’s impressive 13 per cent rally. Investors reallocated capital away from the underperforming bank sector, which experienced a decline of 1.3 per cent. Resources also saw significant growth, rising 4.5 per cent, supported by widespread gains in key commodities, including iron ore, lithium, oil, gas, and coal. However, gold stocks underperformed despite a slight increase in bullion prices, with Northern Star Resources and Evolution Mining experiencing declines.
Macquarie reported that value stocks outperformed growth stocks by 1.8 per cent, largely due to the rebound in the resources sector. However, quality stocks performed even better, outperforming value stocks by 3.8 per cent. This trend contrasts with the United States, where growth stocks have been the dominant performers. Macquarie is a global financial services group providing clients with services including asset management and finance, banking, advisory and risk and capital solutions across debt, equity, and commodities.
Looking ahead, Macquarie anticipates a 3.2 per cent decline in FY25 earnings, marking the third consecutive year of declines. A modest rebound of just 2.2 per cent is forecast for FY26. The firm expects further downgrades in August as companies issue cautious guidance during reporting season. Historically, August and September are seasonally weak months for equities, with September being the worst-performing month on average over the past decade, potentially creating buying opportunities before an anticipated FY26 earnings recovery. Despite the projected earnings decline, Macquarie remains optimistic about the broader economic outlook into FY26, underpinned by anticipated global interest rate cuts and improving economic activity.
