A shock 6% surge in the S&P/ASX 200 has caught plenty of investors off guard, but market strategists reckon this rally could be just getting started. Here’s why peace in Iran, a rotation out of the top 20 and renewed conviction on US earnings could combine to push local shares even higher.
Just when you thought our stock market had had a shocker for 2026, we have seen the S&P/ASX 200 spike by 6%, so it begs the question: how come? And the experts think this is only the beginning of an overdue comeback.
The AFR has sought out market soothsayers and they believe if the Iran war ends, it will be a plus for local stocks, even if we have an inflation challenge.
“We can push higher from here,” said Luke McMillan, head of research at Ophir, told the AFR’s Cecile Lefort. “The major overhangs to markets are still the war, and we’ve had better news this week.
“So as long as that keeps a lid on oil prices and rate hike expectations, you can get back to the fundamental story, which is the economic engine of the globe, being the US, looking pretty good.”
Year-to-date, the S&P/ASX 200 index is up 6.23%, but 5.31% of that has come over the past month. On the other hand, the US-based S&P 500 index is up 12.38% year-to-date, but over the past month the lift has only been 2.62%.
I especially like to see the EX20 exchange-traded fund (ETF) that has risen 5.54% in the month, which suggests many of the stocks not in the ASX top 20 are now getting the attention of major stock players.
This suggests a rotation is happening into other stocks that have either been beaten up or ignored over the past year after local interest rates started to rise because of persistent inflation.
For example, CSL has rebounded 8.58% over the past five days, while Xero has put on 6.76% after losing 57% over the past year. Clearly, there is a lot of ground to make up, but the trend is starting to look more like a friend for some great local companies that have been well out of favour.
US stock market indexes have been hit by AI anxiety and doubts about overinvestment in this new age innovation that promises much. Yesterday, I referred to an interview I had with Cathie Wood of ARK Innovation ETF fame, who is launching an ARK Venture Fund in Australia, and who believes the US stock market is set for another big leg up.
If that happens and peace happens in Iran, then the implications for oil prices, inflation and interest rates will all be lower. And that should send stocks up, which will not only justify the recent rise in local stocks but give momentum for further rises.
Giving credibility to Wood’s call was Kerry Craig, global market strategist at JPMorgan Asset Management, who told Lefort the following: “In the US, you’re seeing a bit more broadening in the earnings story. It’s been overshadowed by these massive numbers out of the hyperscalers, but there are strong positive numbers coming from financials, and parts of the industrial complex that aren’t related to AI.”
That’s what market experts call rotation, and it looks set to be a powerful force for more gains in stocks.
Personally, I’ve been arguing that peace should be good for the global economy and that usually leads to demand for resources, and Daniel Seeney of FiveRock Asset Management is on the same page.
“Resources remain very strong, and the outlook, in particular the large miners that have very profitable tier-one assets, remains sound on the basis of continued heavy infrastructure investment in AI,” he told the AFR.
What happens to the CBA will be interesting. It is up 7.9% over the month, but only 1.38% over the week, as the local stock market has surged.
It won’t be helped by the fallout of the three rate rises and the Budget’s hit on the housing sector. I think a rotation into other stocks, rather than only the top 20 big companies, is a healthy development, and news that the RBA might have finished with rate rises could be a real plus for investors wanting to buy stocks numbered 21 to 200 or even 300.
This could really help ETFs that focus on the top 200 stocks such as VAS, A200, STW and IOZ.
Peace in Iran could be the start of something big!
