Markets climb on, despite the noise
July 2026
The past few months have been a timely reminder that markets do not always move in line with the evening news. Headlines have been unsettling, dominated by the Iran war, oil prices, supply chain issues and interest rates.
But investors looked through the immediate uncertainty, pushing sharemarkets higher as they focused on company earnings and the resilience of the U.S. economy, in particular.
The U.S. sharemarket recovered its initial decline from the outbreak of war in less than three months, reaching a record high of 7609.77 on 2 June1. The 14.9%2 gain in global shares over the quarter, outstripped a still solid 4.1%3 gain in Australian shares.
The main driver of global shares has been a super cycle for company profits. Over the past three years, forecast earnings for companies in the U.S. S&P 500 index have compounded at a rate of roughly 16% annually. That is a pace exceeded in recent decades only by the market rebounds that occurred after recessions.
The U.S.$75 billion SpaceX float – the largest ever in history – captured the imagination of some investors too. All eyes are now on the potential floats of OpenAI and Anthropic, and the combined impact these mega offerings could have on market dynamics.
Pressure points
Risks remain though. If the Middle East conflict drags out, it could impact households and businesses via higher petrol prices, freight costs, food prices and energy bills – all of which could hurt company profits. However, the global economy is less exposed to oil shocks than it was in past decades. Energy efficiency has improved, households spend a smaller share of income on energy, and renewables are providing a greater share of power in places like Europe.
There are other reasons to be cautious too. Supply chain pressures have begun to build again and similar disruptions from COVID contributed to the last inflation surge. Expectations about whether interest rates will rise or fall are changing regularly, though Russell Investments believes rates will be on hold for some time.
In Australia, the picture is more measured. The economy is likely to grow more slowly than its long term average as higher interest rates weigh on household spending and confidence. Productivity remains a challenge and local company earnings may struggle to match the strength seen offshore, which could result in lower returns for local share investors. At the same time, government bonds continue to offer diversification benefits, while the Australian dollar appears close to fair value.
The takeaway is that markets have proven resilient to a series of stress tests – but are not risk-free. For investors, the sensible approach is to avoid reacting to every headline and instead remain diversified, review portfolios regularly and stay focused on their long-term strategies.
1S&P500 index price high intra quarter, Bloomberg
2MSCI ACWI A$ Hedged, Bloomberg
3S&P/ASX 300, Bloomberg
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