Rudi’s View: Is Higher Volatility Now A Permanent Feature?

Rudi's View | 10:00 AM

At times, it's the most difficult question to answer: if it's such a great company, how come its shares keep falling?

By Rudi Filapek-Vandyck, Editor

That question has become even more prevalent as some companies whose share price is under pressure did not disappoint with their market updates. In some cases, their operational numbers proved better-than-expected, including guidance for the year(s) ahead.

The question has been asked multiple times over in the first seven weeks or so of calendar year 2026 as growth and technology stocks are experiencing true bear market conditions.

With technical indicators suggesting heavily oversold conditions for many by last week's end, share prices are having a better session on Monday. But one swallow most definitely does not a summer make.

Realistically, nobody knows how far this will go or when exactly the selling will stop.

On my observation, the way investors perceive what is going on in today's share market is almost exclusively linked to where their portfolio's exposure and thus personal interest are concentrated.

Those who are on board the resurgent commodities trade, see the downfall of AI, technology and growth as simply the natural re-adjustment after years of outperformance and exuberance. Those who witness their portfolio taking a big dive can hardly believe their eyes.

Equally noteworthy: we humans, we live by the narratives of the day and many of today's narratives suit the underlying trends in share prices.

There are currently so many narratives going around, there's not even a genuine consensus on why the relentless selling for WiseTech Global ((WTC)), TechnologyOne ((TNE)) and the likes has taken place (they might be conveniently grouped together under the label of 'future AI threatened').

One thing is certain: the machines are heavily involved. Continuous AI development, and availability, has made sure everyone with time and determination can now master his/her own automated proprietary trading machine and indications are such algorithmic trading is heavily involved in 2026.

But by no means, don't look at your neighbour who happens to run a successful trading robot on the side. The world's big boys are onto this now, and they are as active in Australia as they've been in the past.

See also some fresh insights on this matter published by the AFR on Monday, involving Two Sigma and Susquehanna under the title High-frequency hijack makes ASX like a casino.

On Macquarie's assessment, results releases in the first half of February have triggered on average a share price decline of -22% in case of disappointment.

The share market is seldom kind to companies that fail to meet expectations, but that number is a lot higher than what Australian shareholders and local business leaders had become accustomed to.

And so the trend of higher volatility, in particular to the downside, for ASX-listed companies has simply accelerated onto a higher gear in 2026. I wouldn't bet this extreme bout of volatility will not continue over the two weeks remaining, when things get genuinely busy.

For good measure: positive momentum is now with commodities, cyclicals and yesteryear's laggards --the so-called value segment of the market-- and thus far financial results are underpinning the market's newfound heroes.

The first 53 assessments in FNArena's Corporate Results Monitor have generated 18 upside surprises (34%) against 14 disappointments (26.4%).

Many of those outperformers are enjoying their newfound status of reborn heroes, including AGL Energy ((AGL)), GPT Group ((GPT)), James Hardie ((JHX)), News Corp ((NWS)), and Origin Energy ((ORG)).

Even Aurizon Holdings ((AZJ)) managed to deliver a positive surprise on Monday morning. Banks are thus far the positive surprise package this season, with many A-REITs equally confirming analysts' positive views beforehand.

For companies labeled software, technology, or growth the headwinds are a whole lot harder to overcome. And as yet again proven by Bravura Solutions ((BVS)), even if the initial share price reaction is positive, the gains booked can disappear just as quickly in the days following.

Last week, I compared this year's experience with those experienced with IDP Education ((IEL)) and ResMed ((RMD)) in recent years.

Even if the end outcomes lay somewhere in the middle between those two experiences, it's difficult not to conclude today's beaten down share prices look too bearishly priced for what possibly awaits on the horizon, including further improvement in AI development.

But this doesn't by any means imply share prices cannot go lower. These stocks trade on higher multiples with no dividend support. Which, I believe, also made them ideal targets for international hedge funds and shorters, through automated algorithms or otherwise.

In the current context there's no incentive for institutional investors to start buying either (assuming they too aren't selling to keep their performance numbers out of the quagmire).

So, apart from owning cyclicals and value stocks, what does one do?

If you're still on board those sectors for which the momentum pendulum has swung hard in the opposite direction, the big question is always: what if I sell close to the bottom?

You will berate yourself if some time after your decision, the market calms down and share prices put in a strong recovery rally (some are doing exactly that on Monday).

The solution doesn't need to be black or white. Portfolios can also reduce holdings to stocks that are currently under the pump and that cash can always be re-allocated back down the track.

Nobody enjoys seeing their investments shrink day after day. The ability to sleep at night should never be underestimated.

One subscriber asked me why price targets by brokers are reducing by much smaller percentages in comparison with the heavy falls in share prices. The answer is two-fold.

Current forecasts and price targets are not incorporating the same magnitude of disruption that is currently being priced in. So we're effectively talking about two different worlds.

One implies business as usual, with maybe, potentially, a little bit of negative impact. The other scenario is one of near annihilation, or at least severely impacted business models.

The second reason is that analysts have no idea what to put through their models in case of worst-case outcomes, which are far less certain than some commentators would have us believe.

For good measure: most analysts are not even contemplating such horror scenario outcomes.

Here's a snippet from Bell Potter:

"The recent software sell off was indiscriminate, but we see this as overblown and do not believe AI will displace every company.

Instead, we see an AI-augmented future for many software companies."

Bell Potter's number one favourite --with conviction-- is WiseTech Global. See also last week's Weekly Insights:

https://fnarena.com/index.php/2026/02/11/behind-the-ai-threat-narratives/

There's more on this discrepancy in the local share market further below.