August In Review: Banks & Golds Drive Rally

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Despite at times a bruising August reporting season, the index topped new all time highs for a fifth straight month of gains.

-ASX200 added 3.10% (total return) in August
-Reporting season splits the market, yet index lifts again with several record rises
-Large-cap stalwarts falter as small caps, gold, and banks drive August gains
-Investor sentiment lifts on rate cuts, consumer rebound, and small-cap strength
-Can investors "Buy Now, Earn Later" approach be sustained into September?

By Danielle Ecuyer

Favourites falter as investors rotate into value and resources

One could be forgiven for thinking the changing dynamics of world trade and global uncertainty created a clear fault line in stock and sector performances during August.

Large-cap stalwarts, traditionally viewed as safe havens of quality and defensiveness, were caught up in challenges and earnings disappointments that undermined their premium status.

Think CSL ((CSL)), down -21.4%, Woolworths Group ((WOW)), down -15.9%, James Hardie Industries ((JHX)), down -24.5%, and AGL Energy ((AGL)), down -12.7% on disappointing earnings reports and FY26 guidances.

Despite these major disappointments, the S&P/ASX200 rose 2.63% over the month, a fifth rise in succession since April Liberation Day lows, for a total return of 3.1%.

The Australian market trailed the Nikkei, up 4.01%, and the Dow Jones Industrial Average, up 3.20%, not a bad performance considering the challenges thrown up by corporate Australia reporting.

Morgan Stanley highlights FY25 earnings growth settled at a negative -3.1%. The FNArena Corporate Results Monitor (https://fnarena.com/index.php/reporting_season/) with 373 stocks covered came in with 20.9% Beats and 29.5% Misses;  48 upgrades and 81 downgrades, compared to August 2024 (384 stocks) with 27% Beats and 37% Misses; 45 upgrades and 54 downgrades.

Both August result seasons are among the worst in the twelve year history of FNArena’s Monitor, showcasing a large gap in favour of net disappointments while most seasons generate a higher percentage in ‘beats’.

Small Caps outperformed by 5.9ppts versus their large-cap peers, driven in part by favourable (domestic and international) policy backdrops. Think defence and mining services as two examples.

Value rose 10% and small caps lifted 6.3%, which included small-cap miners/materials. Gold played its part, shining brightly over August. Although the gold price only rose 4.48% or US$130/oz, small-cap gold miners rallied 41% and materials as a sector rose 15.1%, a major contributor to index performance at 357bps, with 260bps generated from the golds.

Overall, the gold sector advanced 20%, reflecting quite some relative leverage to the actual gold price.

Healthcare’s underperformance continued into August

Healthcare continued the year-to-date malaise; the sector crashing -13.25% led by CSL’s -21%-plus drawdown and Telix Pharmaceuticals ((TLX)) shares diving -30.64%.

The former remains challenged by the ghosts of covid on Behring’s plasma margins. The US movement against vaccines has led management to target a spin-off of Seqirus in 2026, while Telix remains caught in the crosshairs of the SEC and higher investment spending.

Ramsay Health Care ((RHC)) and Sonic Healthcare ((SHL)) also weighed on the index, down -13% and -15%, respectively.

Technology also detracted from the market’s performance, with Information Technology down -1.72% and the All Technology index rising only 0.79%.

A US$2.50 lift (2.66%) in the iron ore price boosted materials, up 8.98%, while the uranium price moved higher by 5.63%, taking the more recently sold-off uranium stocks for a month-end rally.

Lithium and rare earths also shot back into favour, with shares in Pilbara Minerals ((PLS)) up over 52% and Lynas Rare Earths ((LYC)) up 32%.

Materials contributed 165.8bps and Financials 126.2bps to the ASX200 index performance, underwriting the bulk of the rise. Healthcare detracted by -127.1bps.

Within that context, BHP Group added 75.9bps (up 10%), and the big three Banks, Westpac ((WBC)), National Australia Bank ((NAB)), ANZ Bank ((ANZ)), and Wesfarmers ((WES)) were the combined top five stocks that contributed to index gains, Morgan Stanley reports.

Big banks are back with a bang

Total shareholder return of the major banks came in at 7.7%, outperforming the ASX200 by 3.1%, excluding CommBank, which underperformed.

Westpac shares rallied 14.2% on better-than-expected revenue growth and higher-than-anticipated margins in 3Q25. NAB and ANZ shares rallied 10% and 9.6%, respectively. To sharpen the focus, NAB’s share price is now back to levels not seen since 2007 and Westpac since 2015.

As expressed by Morgan Stanley, the domestic backdrop and operating trends were positive on strong loan growth and fewer headwinds to margins.

There has been a slight discernible shift in Morgan Stanley’s sentiment towards Australian Banks. The analyst believes there is an improved operating environment for the sector with minimal earnings risk and “healthy” balance sheets, factors which should support the banks trading at valuation multiples above post-covid averages.

NAB is the broker’s preferred major, offering the optimal mix of growth and returns. ANZ is second preferred, as it is trading on a larger-than-usual valuation discount.

CommBank is not expected to be able to achieve the earnings growth to support its elevated valuation.

Green shoots of a consumer cyclical recovery

The RBA’s August 12 -25bps rate cut this August reporting season stood in contrast to July’s surprise ‘hawkish’ Hold on rates.

A notable turnaround in consumer-related sales over 4Q25 earnings results was evidenced, including an acceleration of sales momentum into FY26 year-to-date like-for-like sales.

The turnaround buoyed investor sentiment that lower interest rates were finally impacting positively on consumer sentiment, which was apparent in multiple earnings updates from discretionary retailers.

The sector rose 7.5%, with Autos up 15% as AP Eagers Automotive shares rallied 45%. Other highlights included Harvey Norman ((HVN)), Universal Stores ((UNI)), Lovisa Holdings ((LOV)) up 30%, Nick Scali ((NCK)) up 26%, Super Retail Group ((SUL)) and JB HiFi ((JBH)) up 12%.

Although the durability of the domestic consumer recovery remains open to debate, for August at least, the cyclical recovery was not in doubt, with a basket of related stocks rising 8.8%.

Other points worth noting were one-time favourite building-related companies Reece ((REH)) and James Hardie; both reflecting the challenges relating to the US housing and restoration & renovations markets, as well as sluggish results from Australia and New Zealand.

Investors must be starting to question when lower interest rates in A&NZ will flow through to this beleaguered sector. More positive signals were included in market updates from developers Stockland ((SGP)), GPT Group ((GPT)), and others.

August index record, but where now for September?

Most notably, the ASX200 index breached the 9,000 level on August 21 to 9054, but September, as highlighted by Macquarie, is on average the most volatile month of each calendar year, with possible follow-through into October.

November tends to be the year’s best performing and retail investors are flagged by the broker as likely to support a year-end rally.

Macquarie points to a net EPS beat in August of 11% led by small industrials. Despite the large-cap sell-offs, the multiple new index highs over August were attributed not to earnings improvements but to global liquidity and the prospect of more interest rate cuts.

By factor, MSCI Australia Value rose 7.1% in August, outperforming its opposite by 10% as Growth fell -2.9%, Momentum added 4.9%, and High Dividend Yield 5.3%. Quality as a factor only rose by 1.3% over the month.

Since 2015, the ASX200 total return for September has been positive in 2024 (3%), 2019 (1.8%), and 2016 (0.5%), with 2023 the worst (-6.2%), followed by 2020 (-3.7%).

As at the end of August, Macquarie’s FOMO meter stood at 0.79, up from 0.76 in July, described by Macquarie analysts as “positive, but not too positive”.

As aptly described by Morgan Stanley, investors have adopted a “Buy Now, Earn Later” approach.

The forward price-to-earnings multiple reached a new high of 19.9x for the ASX200 despite earnings growth lagging. FY26 earnings sit at “modest” 4.5% growth; only time will tell if the low bar can be breached.

Morgan Stanley believes at this stage outlook statements are not challenging the conservative approach at this point of the cycle.

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

Editor’s Note when viewing the graphics below: all updates include early trading sessions in September. 

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