The ASX rose 3% over the month—an impressive result given the geopolitical backdrop. However, it lagged the US S&P 500, which gained 13%. While much of the uplift came from mega-cap technology stocks, the broader US market was also strong, with the S&P Equal Weight Index returning 6.8% for the month. Markets with greater exposure to services and technology performed best. Taiwan’s market was particularly strong, up 22%, while another tech-heavy market, Israel, gained 8.5% over the same period.
We are now two months into the Iran war, with oil prices remaining around $100 per barrel. While this has significant economic implications, equity markets have been less affected. It is a useful reminder that the economy and the market are not the same. Although there have been some earnings downgrades—particularly Cochlear (COH) domestically—markets overall have remained resilient.
Financial markets remain focused on corporate earnings, which continue to be robust. Earnings for ASX-listed companies are forecast to grow by around 10% over the next year. In the US, corporate earnings are expected to grow by approximately 14%, largely irrespective of developments in the war or potential disruptions in the Strait of Hormuz.
Consumer spending remains stable, even as sentiment stays subdued. The key question is what happens next, though markets appear comfortable buying on dips. As Howard Marks recently wrote, “true believers make the most money in manias, and sceptics lose the least when they crash”. But the key to the investment success we aim for lies in always maintaining a healthy balance between belief and doubt.
Alex Leyland