{"id":712568,"date":"2025-07-08T14:52:34","date_gmt":"2025-07-08T04:52:34","guid":{"rendered":"https:\/\/www.gomarkets.com\/?p=712568"},"modified":"2025-07-08T14:56:47","modified_gmt":"2025-07-08T04:56:47","slug":"where-to-for-fy26-and-beyond","status":"publish","type":"post","link":"https:\/\/www.gomarkets.com\/en\/articles\/central-banks\/where-to-for-fy26-and-beyond\/","title":{"rendered":"Where to for FY26 and beyond?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The ASX 200 closed out the 2025 financial year on a high, reaching a new intra-month peak of 8,592 in June and within touching distance of the all-time record.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The index delivered a 1.4% total return for the month, rounding off a strong final quarter with a 9.5% return and locking in a full-year gain of 13.8% \u2014 its best performance since 2021.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This strong finish all came down to the postponement of the Liberation Day tariffs. From the April 7 lows through to the end of the financial year, the ASX followed the rest of the world.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Mid-cap stocks were the standout performers, beating both large and small caps as investors sought growth opportunities away from the extremes of the market. Among the sectors, Industrials outperformed Resources, benefiting from more stable earnings and supportive macroeconomic trends tied to infrastructure and logistics.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But the clear winner was Financials, which contributed an incredible 921 basis points to the overall index return. CBA was clearly the leader here, dominating everything with 457 basis points on its own. Westpac, NAB, and others also played a role, but nothing even remotely close to CBA.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Industrials and Consumer Discretionary sectors made meaningful contributions, adding 176 and 153 basis points, respectively. While Materials, Healthcare, and Energy all lagged, each detracting around 45 to 49 basis points.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Looking at the final quarter of the financial year, Financials were by far the biggest player again, adding 524 basis points \u2014 more than half the quarter\u2019s total return of 9.5%. Apart from a slight drag from the Materials sector, all other parts of the market made positive contributions. Real Estate, Technology, and Consumer Discretionary followed behind as key drivers.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Once again, CBA was the largest individual contributor, adding 243 basis points in the quarter, while NAB, WBC, and Macquarie Group added a combined 384 basis points. On the other side of the ledger, key underperformers included BHP, CSL, Rio Tinto, Treasury Wine Estates, and IDP Education, which all weighed on quarterly performance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">One of the most defining features of the 2025 financial year was the dominance of price momentum as a market driver \u2014 something we as traders must be aware of.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Momentum strategies far outpaced more traditional, fundamental-based approaches such as Growth, Value, and Quality. The most effective signal was a nine-month momentum measure (less the most recent month), which delivered a 31.2% long-short return.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The more commonly used 12-month price momentum factor was also highly effective, returning 23.6%. By contrast, short-term reversals buying last month\u2019s losers and selling last month\u2019s winners was the worst-performing approach, with a negative 16.4% return.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Compared to the rest of the world,\u00a0 the Australian market was one of the strongest trades for momentum globally, well ahead of both the US and Europe, despite its relatively slow overall performance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Note: these strategies are prone to reversal, and in the early days of the new financial year, there has been a notable shift away from momentum-based trading to other areas. Now is probably too early to say whether this marks a sustained change, but it cannot be ignored, and caution is always advised.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The second big story of FY26 will be CBA. CBA\u2019s growing influence was a key story of FY25. Its weight in the index rose by an average of 2.1 percentage points across the year, reaching an average of 11.5% by June.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That helped push the spread between the Financials and Resources sectors to 15.8 percentage points \u2014 the widest gap since 2018. Despite the strong cash returns, market valuations are eye-watering; at one point during June, CBA became the world\u2019s most expensive bank on price metrics.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The forward price-to-earnings multiple now sits at 18.9 times. This is well above the long-term average of 14.7 and higher than the 10-year benchmark of 16.1.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Meanwhile, the dividend yield has slipped to 3.4%, down from the historical average of 4.4%.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Earnings momentum remains soft, with FY25 growth estimates still tracking at 1.4%, and FY26 forecast at a moderate 5.4%.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This suggests that recent gains have come more from expanding valuation multiples than from actual earnings upgrades, making the August reporting date a catalyst day for it and, by its size, the market as a whole.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the macro front, attention now turns to the Reserve Bank of Australia. The central bank cut the cash rate by 25 basis points to 3.6% at its July meeting.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Recent commentary from the RBA has taken on a more dovish tone, with benign inflation data and ongoing global uncertainty expected to outweigh the strength of the labour market.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The RBA appears to be steering toward a neutral policy stance, and markets will be watching for further signals on how that shift will be managed.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Recent economic data has been mixed. May retail sales were weaker than expected, while broader household spending indicators held up slightly better. Building approvals saw a smaller-than-hoped-for bounce, employment remains strong, but productivity is low. Inflation is now at a 3-year low and falling; all this points to underlying support from the RBA\u2019s easing bias both now and into the first half of FY26.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As we move into FY26, the key questions are:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Can fundamentals wrestle back control over momentum?\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Will earnings growth catch up to price to justify valuations?\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">How will policy decisions from the RBA and other central banks shape investor sentiment in an ever-volatile world?<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">While the early signs suggest a possible rotation, the jury is still out on whether this marks a new phase for the Australian market or just a brief pause in the rally that defined FY25.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The ASX 200 closed out the 2025 financial year on a high, reaching a new intra-month peak of 8,592 in June and within touching distance of the all-time record.\u00a0 The index delivered a 1.4% total return for the month, rounding off a strong final quarter with a 9.5% return and locking in a full-year gain [&hellip;]<\/p>\n","protected":false},"author":94,"featured_media":712570,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,2805,4382],"tags":[],"class_list":["post-712568","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-central-banks","category-featured"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Where to for FY26 and beyond? 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