August In Review: Much Better Than Feared

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This story features UNIVERSAL STORE HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: UNI
The company is included in ASX300 and ALL-ORDS

August delivered a few positive surprises with standout performances from Materials (Gold) and Healthcare with cost cutting boosting corporate margins generally.

• August reporting season reveals (yet again) a two-speed Australian economy
• Materials, gold and AI exposures leave consumer-facing stocks behind
• Value and Quality continue to outperform as sector dispersion widens
• RBA rate hikes and rising global bond yields threaten the September outlook

By Danielle Ecuyer

Australia was a relative outperformer in August

It might just be a personal observation, but the sheer amount of negative narratives circling the Australian economy and share market may have superseded what was a decent August performance for the ASX, in a relative context.

One’s share portfolio may not reflect the same positive outcome as, yet again, the bifurcation between sectors, factors and value versus growth came to the fore, yet again, meaning one could have been either popping the champagne corks or licking the wounds from post-FY26 results share price sell-offs.

Maybe August delivered a combination of both for most investors?

As highlighted by Morgan Stanley, the S&P/ASX300 total index return rose 1.6% in August, outperforming global peers in Australian dollar terms.

It was the fifth consecutive month of gains, with the focus on earnings and away from geopolitics, the broker explained.

Digging into the weeds for answers

Macquarie’s summation of the August reporting season goes a long way to explaining why some stocks and sectors worked for investors, while others didn’t.

Margin expansion did the heavy lifting for companies as top lines were largely soft, helping to underwrite better-than-feared results as lower costs helped the bottom line.

On this broker’s data crunching, ASX companies registered a 15%-plus net EPS beat for the June half-year.

Guidance was considered less negative, and arguably some earnings forecasts had been cut too much after the Iran conflict (albeit that is back, at least for now), while dividends were resilient.

The offset: guidance misses exceeded beats by 12% points, but Macquarie says this is usually the case. Regardless, when it comes to share price moves, guidance proved the most significant factor in August.

The FNArena Corporate Results Monitor, which encompasses 370 companies and combines actual results with guidance provided in relationship to analysts’ forecasts, shows 108 results beat expectations (29.2%), 128 results landed In Line (34.6%), and 134 , or 36.2%, disappointed.

The monitor too noted many disappointments were due to underwhelming guidance provided.

For more in-depth analysis, see FNArena Editor Rudi Filapek-Vandyck’s detailed Weekly update: https://fnarena.com/2026/09/02/rudis-view-resilient-but-august-fails-to-excite/

The net DPS beat came in at 23%-plus, while stocks that announced new share buybacks outperformed by around 5% points in the first two days after reporting.

Australia’s two speed economy shows through 

Beneath the broad-brush assessment, the domestic economy is running at two speeds.

Companies exposed to the embattled household sector generally fared less well, with some exceptions like Universal Store ((UNI)).

The household purse is struggling under cost-of-living pressures and higher interest rates, with the prospect of more RBA rate hikes, as well as fallout from the Federal Government budget. Falling housing prices and changes to CGT rules, as well as rising credit concerns around property, aren’t assisting the public mood or media commentary.

In contrast, the domestic investment economy is much stronger across business lending, infrastructure, defence, mining services and data centre spending, which are all boosting demand for a suite of companies exposed to these sectors.

Financials were the most obvious sector to reflect the challenges around the property sector and underperformed, falling -5.3% over the month, exceeded only by Real Estate, down -6.4%, and Consumer Discretionary, down -7.3%.

Cyclical retail was the worst performer, down -10.6%, as the consumer over the June half reacted to higher interest rates and stubborn inflation. The scope for another rate hike also weighed on retailers’ share prices.

Rising bond yields remain a major factor for investors and companies.

The lucky country continues to benefit from commodities

In contrast, it was the Materials sector’s time to shine again, up 12.3%. Gold was the best performer, up 29%, assisted by a 9% rise in the gold price over the period.

Over the last 12 months, the Materials sector has gained 48.8%, mirroring higher precious metal and metals prices, like copper, against a megacycle of AI spending and a flight to precious metals.

Multiple tailwinds assisted gold in August, including an unexpected decline in US payrolls and the US Treasury announcing it was doubling its bond-buying program, post-US Treasury intervention to support the yen in late July, Macquarie explains.

As is typical this year, these trends have started to unravel into the seasonally weak month of September. The Middle East conflict is back with higher oil prices, and bond yields globally have started to rise, with US Fed Chair Kevin Warsh tipping his hat to a possible rate hike at the September meeting.

Morgan Stanley also highlighted Commodities as the standout performer in August, returning 4%-plus in AUD terms and up 37.9% over the last year. No surprise, the Materials sector has been the standout on the ASX.

Agriculture rose 11.8%, Gold was up 9.7% and Precious Metals were up 7.9%. Industrial Metals were the weakest, up 1.3%, with Crude Oil very volatile.

The Health sector, which had been a painful laggard and remains down -18.7% over the last 12 months, sprang back to life during results season.

The sector was the second-best performer, rising 18.1%, with better-than-feared results and a lack of earnings downgrades among sector heavyweights, in contrast to the post-covid years.

CSL ((CSL)) was the heavy lifter, its shares rising 40% following the absence of more disappointing news.

AI enablers were equally a standout, generating a net EPS beat of 26% points and were the only AI group with positive guidance, up 14% points.

Macquarie comments the most identifiable segments remain data centres, connectivity and hardware.

September shaping up to meet its volatile, risk off reputation

From a global asset allocation perspective, Morgan Stanley has further increased its underweight position in Australian equities and exited Australian Listed Property due to “limited upside”.

Capital allocation has been redeployed to the US, Europe, Japan and Emerging Markets.

The global asset allocation team expects tighter monetary and fiscal policy to moderate domestic demand and slow inflation, which has been boosted by the global energy shock (Middle East war).

Across banks, consumer discretionary and housing related stocks, earnings risks continue to rise. 

The Australian  share market’s PE multiple –at 17-plus– remains above the long term average of 14.9x. Though, that is a moot point given it has been above that long-term average throughout the entire post-covid period to date.

Morgan Stanley prefers Resources and capex-exposed industrials over domestic cyclical companies. Notably, the Materials sector has traditionally outperformed after RBA easing cycles.

It’s thin pickings when looking for a more upbeat assessment of the Australian market. As Macquarie stated, the “rear-view mirror looks good”: EPS beat, buybacks outperformed and guidance wasn’t as bad as feared, nor were some of the results.

But stubbornly high inflation and a re-acceleration in economic growth are complicating the outlook. June quarter GDP came in at 0.4%, slightly higher than the 0.3% in the March quarter. The annual growth rate of 2.1% y/y has eased from 2.5%, but as Tony Sycamore from IG points out, it is well above the 1.8% annual growth expected.

Much of the boost to household spending, up 0.4% and contributing 0.2% points to GDP, came from vehicle purchases as consumers continue to transition to EVs.

The market is pricing in a Melbourne Cup Day rate hike and another rate hike now about 75% priced for March 2027, which would take the cash rate to 4.85%.

Grace Kim, ABS head of National Accounts, said: “Economic growth remained subdued in the June quarter as households continued to behave cautiously. While increased spending and business investment occurred in pockets of the economy, imports supported much of the growth, moderating its contribution to overall GDP growth.”

The RBA isn’t Robinson Crusoe when it comes to a tightening cycle, with global central banks, including the Fed, expected to join by year-end.

The CME FedWatch is showing a 66% chance of a rate hike at the Fed’s September 15-16 meeting.

For Macquarie, the FOMO meter is close to exuberance again while active equity exposure positioning is above 100%. The broker sees more risks from the US midterms exacerbating seasonal volatility.

As Ed Yardeni puts it: “What could possibly go wrong in September? Investors are already freaking out about rising bond yields worldwide. The fear is that the Bond Vigilantes are on the loose and driving yields higher in protest over large government deficits, mounting government debt, and rapidly rising government interest costs. In addition, oil prices remain elevated and are fueling inflation.”

For investors, perhaps the more useful reminder after the extremes of August is the old adage, “this too shall pass”. Today’s winners and losers rarely retain those titles indefinitely, particularly when sector and factor rotations are this pronounced.

Against such a backdrop, Macquarie prefers Quality and Defensives, as well as Value and those stocks with momentum upgrades, think Stockland ((SGP)), compared to momentum downgrades such as Westpac ((WBC)) and Downer EDI ((DOW)).

The August reporting season saw Value continuing to beat Growth by 3.8% points, lifting the 12-month outperformance between the two factors to 31.5%.

Macquarie also notes Quality was more robust than either style, up 5.1%, more than twice Value’s 2.4% lift.

Small-cap gold stocks boosted the ASX Emerging Companies, up 13.9%.

On the outlook for interest rates, UBS continues to expect the RBA to hike the cash rate by 25bps by November to 4.6%. The risk of a September rate hike is now considered “material”.

Inflation remains too high.

Since the RBA moved to an inflation-targeting framework in the early 1990s, the average dwelling price cycle correction has lasted around 13 months and fallen peak-to-trough by around -5%.

In terms of house prices, UBS points out they are now expected to fall by more than -5% and towards -10%, one of the worst declines ever recorded in Australia.

For Macquarie, history suggests October is likely a better time to buy risk.

ASX100 Best and Worst Performers of the month (in %)

ASX200 Best and Worst Performers of the month (in %)

ASX300 Best and Worst Performers of the month (in %)

ALL-TECH Best and Worst Performers of the month (in %)

All index data are ex dividends. Commodities are in USD.

Australia & NZ

The World

Metals & Minerals

Energy

IMPORTANT NOTE: the graphics below have started to incorporate the early beginnings of September.

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