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First Up

UPDATED 15/08/2025 08:37

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Two of the most widely held stocks in Australia, Commonwealth Bank (CBA) and Telstra (TLS), both confirmed this week that crowded/momentum trades can be problematic. Meeting earnings expectations when the market is positioned for an upside surprise is simply not good enough. At MM, we made two uncomfortable calls in our Income Portfolio in recent months, selling out of both stocks and reallocating funds into less well-known names. So far, so good on this call—though it’s still early days.

Yesterday was another strong session for the ASX, underpinned by a surprisingly good update from Westpac (WBC), which pushed shares up more than 6%, alongside generally solid earnings across the board. This was supported by employment data mid-morning, which eased fears of a weakening labour market, even though it also took some air out of the “rate cut in September” balloon. We still think the RBA is in the early stages of a string of cuts, which could take the cash rate 1% lower over the next 12 months. If this coincides with reasonable economic data—as was the case yesterday—and resilient earnings, equities will have a solid tailwind at their back.

One obvious trend sweeping markets yesterday, aside from large-cap results, was the continued improvement in building-related stocks. James Hardie (JHX) rallied +3.96%, and the downtrodden Reece (REH) gained more than 4% on the day. This is a sector that stands to benefit from the themes mentioned above, with both stocks still trading well below recent highs. We think the market is likely to gravitate towards depressed cyclicals as the ‘certainty trade’ loses momentum. We’ve already started to see this in resources, which are up 12% in FY26 to date, outperforming financials by 14% and tech by over 10%. We expect this theme to broaden, with building-related stocks potentially front and centre.

Overseas markets were flat overnight, pausing after a strong run as a US inflation gauge came in hotter than hoped. The main US indices posted only small moves by the close, while smaller caps fell 1.2% as bond yields moved higher.