Interim Reporting Season
The February 2026 reporting season was marked by heightened volatility in share price reactions, even though overall corporate earnings were generally stable. While the broader market remained relatively resilient, individual companies experienced large price movements following the release of their results. This highlighted the increasingly sensitive relationship between company performance and investor expectations.
A key feature of the season was the growing dispersion between companies that exceeded expectations and those that fell short. Businesses that delivered stronger-than-expected earnings or provided positive outlooks were often rewarded with sharp share price gains. Conversely, even minor disappointments in earnings, margins, or forward guidance frequently resulted in significant selloffs. This pattern suggested that markets were placing greater emphasis on whether results exceeded consensus forecasts rather than simply assessing the absolute level of profitability.
Another factor contributing to this volatility was the structure of modern equity markets. Increased participation from algorithmic trading strategies, passive investment flows, and quantitative funds has amplified market reactions to earnings announcements. As a result, relatively small changes in earnings expectations or guidance can trigger large, rapid shifts in share prices during reporting season.
Despite the volatility, the overall earnings environment remained broadly constructive. Many companies reported stable revenues and maintained solid balance sheets, indicating that underlying corporate fundamentals were still reasonably healthy. However, the wide range of share price outcomes demonstrated that markets are becoming increasingly selective in how they reward performance.
Overall, the February reporting season reinforced the idea that equity markets are becoming more stock-specific and expectation-driven. For investors, this means that accurately assessing market expectations and company outlooks is becoming just as important as analysing financial results themselves. Even modest surprises can lead to substantial short-term price movements, making earnings seasons periods of elevated volatility and opportunity.
Please review to the attached for a summary on how each company reported and how it was interpreted by a range of brokers.
Breakout of Iran War
Moving into March, and the Iran war has dominated news flow. We are now experiencing an oil price shock, recognised as the 6th such event in the last 50 years. This is due to roughly one-fifth of the world’s daily oil consumption passing through the 34km-wide Strait of Hormuz grinding to a standstill due to drone attacks from Iran. The Strait of Hormuz is oil’s only way out of the Persian Gulf for the massive oil exports of Saudi Arabia, Kuwait, the UAE, Iraq as well as much of Iran’s oil exports.
Consequently, oil has jumped 50% in price in less than two weeks, amplified by panic buying by consumers around the world and including from within Australia.
Strategically, it would appear Australia has left itself vulnerable, holding substantially less oil reserves than comparable developed counties.
The concern markets are grappling with is whether this is a blip or a sustained re-rating in oil price. If the latter, this has sustained inflationary implications as energy costs flow directly through to transportation, manufacturing, and food prices. Market commentators estimate a 25% surge in the crude oil price could reasonably translate into up to half a percent in additional pressure on the consumer price index, our key inflation measure. This would force the Reserve Bank to raise interest rates. Current market pricing suggests the cash rate could reach around 4.35% by October this year, effectively signalling two additional 25 basis point rate hikes over the coming months.
This would be bad news for borrowers. Elevated levels of household debt (arguably closely followed by the elevated level of Federal and State Government debt) is a significant chink in the armour of the Australian economy. Household debt now sits at roughly 112% of GDP, well above many comparable advanced economies. As illustrated in the graph below, surging house prices have forced borrowers to take on larger loans relative to income. Adding fuel to the fire, the government has loaned money to first home buyers (the portion of the population that has the least experience in servicing debt!) to enable them to be geared to up to 95% on their first property investment.
This leaves particularly younger and more geared households sensitive to even small changes in official interest rates. If the RBA were to deliver the hikes now priced into markets, mortgage repayments would rise further, tightening financial conditions for households already grappling with high living costs. The implications of this double whammy would result in a sharp pullback in discretionary spending that would then ripple through the economy, squeezing business revenues and ultimately lifting unemployment with further adverse implications.
In the here and now, this is playing out in interesting ways in our share market. Rising Australian interest rates run counter to interest rates globally. This is resulting in a strong $AU Dollar. This runs contrary to the historical norm that, in the event of a geo-political crisis, there is a flight to US Dollar assets. Currency inflows appear to be supporting our larger listed ASX companies, including our big 5 banks. Ignoring global capital inflows, we consider the strength in Australian banks surprising as this is a sector that is highly exposed to consumers and Australia’s expensive property market. Arguably, there exists an element of complacency towards residential property that spans government, consumers, and our banks. Increasingly, I seem to be reminding myself that the Global Financial Crisis was brought on by the flawed assumption that ‘since the great depression, property prices have never fallen by more than 5%’.
In writing the above, I am not suggesting this will happen. However, there is a risk (many experts suggest in the vicinity of 25 – 35%), that the current oil crisis becomes the catalyst to enter a much more challenging economic environment.
To balance the argument, as evidenced by oil futures, markets do expect the oil price to subside over the year ahead.
Oil appreciating in price will encourage new investment in the sector which has been lacking for many years. Likewise, it will continue the global trend of global energy intensity reducing (chart below) and speed up the transition to alternative forms of energy generation. These are all reasons that are supportive of lower long-term oil and gas prices.
The war on Iran started by America and Israel was primarily to remove Iran’s ability to wage conflict, particularly towards Israel. It appears that this goal will be achieved, at least for the foreseeable future. The secondary and more optimistic goal of regime changes appears much more problematic but may still eventuate.
Trump has commenced this conflict without popular support domestically. Likewise, the President has a history of changing course should financial markets react sufficiently adversely to his decisions.
A realistic outcome could be that current military pressure will be applied for a sufficient period to obliterate Iran’s offensive military capacity and to encourage regime change but will not eventuate to seeing mass American Army boots on the ground. Should regime change not occur within a given time frame, a scenario could eventuate where there is a truce … possibly along the lines that Iran allows shipping to resume through the Strait of Hormuz and, in return, America doesn’t destroy Iran’s primary oil infrastructure being Kharg Island, along with key power infrastructure.
America and Israel will ‘win’ a short war through destroying Iran’s military assets and offensive
capacity but would lose a long war if the result was a significant global economic downturn. As such, de-escalation is likely at some point. With respect to oil and gas shares held in portfolios, we are currently continuing to hold. However, should these shares continue to rally, we would become more willing sellers on the expectation the conflict will ultimately wind down – say if Woodside went above $34.00 and Santos above $9.00.
The good news – if ever there is good news in a war – is that times of chaos often provide the best entry points to buy quality companies. During World War I and World War II, the US market rose by an average of 11.4 per cent per year. In my advising career, the day America invaded Iraq signified the market low point for investment markets. At the current time, there is a smorgasbord of attractively priced industrial companies listed on our share market. However, that is not to say they can’t continue to go lower in price. As such, we are continuing to acquire a range of predominately industrial companies, but equally ensuring that a suitable level of liquidity is retained to meet future cash flow requirements as well as ensure there is scope to continue to take advantage of subsequent share market weakness should it eventuate.
