Market Insights

Australian equity markets began 2026 with continued divergence beneath the surface. The S&P/ASX 200 rose +1.78% in January, supported primarily by a powerful rally in Materials, while growth-oriented sectors and the Quality factor remained under pressure.

The defining feature of the month was commodity strength. Gold rose approximately +13% in USD terms, extending what has now been one of the strongest multi-year advances in decades. Central bank gold purchases, which according to the World Gold Council reached record levels in 2024 and remained elevated through 2025, continue to provide structural support. Copper also firmed, metallurgical coal rallied, uranium strengthened, and spodumene prices surged sharply.

In contrast, Technology stocks declined heavily as global markets grappled with the accelerating pace of AI development. Several new large language model releases in December and January heightened concerns about disruption risk for incumbent software businesses. The result was a rapid compression in valuation multiples globally, particularly across high-duration growth equities.

We highlight caution when assessing any new technology investment given the current pace of distribution and supersession.

From a macro perspective, Australian inflation data for the December quarter surprised modestly to the upside, with headline CPI at 3.8% year-on-year and trimmed mean inflation remaining, in our opinion, sticky. Producer price inflation also remained firm. As a result, expectations for the RBA cash rate target have been repriced materially, and the RBA subsequently raised the cash rate by 25bps in early February to 3.85%.

The divergence between Australia and the United States remains noteworthy. While the Federal Reserve is broadly expected to continue its easing cycle, Australia’s policy stance is more neutral to mildly restrictive. This interest rate differential, combined with strong commodity prices, saw the Australian dollar rally approximately +4.4% in January to around US$0.70.

Globally, equity markets were constructive. Emerging markets outperformed (+8.8%), Japan remained firm, and the S&P 500 advanced modestly. However, beneath headline returns, sector rotation has intensified. The dispersion between winners and losers, both across sectors and within them, continues to widen.

In our view, this environment reinforces the importance of disciplined active management. Markets are increasingly differentiating between balance sheet strength and leverage, genuine cash-flow durability and narrative growth, structural advantage and commoditised exposure.

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