Australian equity markets bounced back in April, with the S&P/ASX 200 Total Return Index gaining 2.2% following the ceasefire between the US-Israel coalition and Iran.
The de-escalation of conflict in the Strait of Hormuz prompted a meaningful unwind of the risk-off positioning that drove March’s correction, although our local ASX market lagged the strong rallies offshore. The US S&P 500 returned approximately 10.4%, with major European and Asian markets recording gains of 5% to 14% in local currency terms.
In Australia, the macroeconomic picture continued to harden. The RBA recently raised the cash rate by a further 25 basis points, its third consecutive increase this year, taking the cash rate to 4.35%. Australian CPI accelerated to 4.6% year-on-year in March, with fuel prices alone contributing 1.1% to the headline figure. Trimmed mean inflation held at 3.3% annually, in line with the RBA’s February forecasts.
With unemployment near generational lows at 4.3% and wage growth running above population growth, the RBA further hiked rates in May taking the cash rate to 4.60%.
Sector performance reversed sharply from March.
· Information Technology was the standout, gaining 13.2% as sentiment around data infrastructure and AI-related capital expenditure recovered.
· Real Estate added 8.6%, with the market looking through implied higher rates to focus on CPI-linked rental income.
· Materials returned 4.3% on improved base metals pricing.
· Health Care was the weakest sector, falling 8.7% as earnings expectations were revised lower.
· Consumer Staples also lagged, declining 4.1%.
Size dispersion was notable, with the Small Ordinaries returning 3.3%, the S&P/ASX 200 Ex-20 returning 2.7%, and the ASX 100 returning 2.2%, a reversal of March’s flight to large cap defensiveness.
Within the ASX 100, Quality was the leading long/short factor at 1.0%, with Growth contributing 0.8%, while Momentum lagged at -3.2%. April may mark the start of the Quality factor recovery we have been anticipating, as markets begin to differentiate between business models and reward genuine earnings durability.
In commodities, base metals rallied sharply. Copper gained 5% and nickel surged 14% as the ceasefire improved the demand outlook. Spodumene prices recovered 13% to US$2,660 per tonne and iron ore was broadly flat at US$108 per tonne. Brent crude fell 3.7% to US$114 per barrel, though futures pricing remains well above pre-conflict levels, embedding an ongoing inflationary tail risk. Gold eased 1%. The Australian dollar strengthened 4.4% against the US dollar to 0.72.
Forward earnings for the ASX 200 were revised modestly lower in aggregate, though the FY27 consensus growth outlook of 12.6% remains supportive.
In our view, the environment continues to reward businesses with genuine earnings resilience, particularly as the second-round effects of higher energy costs and the upcoming Fair Work wage decision present additional headwinds to margin expectations. The dispersion between the strongest and weakest sectors remains historically wide, reinforcing the value of disciplined active management.
