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Macquarie’s Optimistic Outlook on Australian Equities: Exploring Macro Velocity
Macquarie Group has adopted a bullish perspective on Australian equities, supported by a comprehensive new analytical approach dubbed "Macro Velocity," which synthesises global rate cuts and economic momentum. This indicator has historically demonstrated a reliable correlation with equity performance since the 1990s, providing a fresh context for understanding recent stock market resilience.
Global Easing Cycle Fuels Optimism
Australian investors have primarily concentrated on when domestic interest rates might be lowered; however, Macquarie points out that global central banks have been engaging in easing measures since December 2023. By the end of 2024, nearly 60% of central banks had initiated rate cuts—a breadth of easing not observed outside of recessive periods since the Russian debt crisis and the Long-term Capital Management collapse in 1998.
This influx of global liquidity has been further amplified by heightened optimism in artificial intelligence, paralleling the conditions reminiscent of the internet boom in the late 1990s. This synergy has resulted in a notable expansion of price-to-earnings (P/E) multiples across various markets, including Australian banks, a development that had previously baffled market analysts.
Recent insights from NAB’s business conditions survey reveal positive momentum, highlighting the most significant increase in trading conditions and profitability since the Reserve Bank of Australia began its rate hikes. Macquarie’s findings align with their Macro Velocity metric, forecasting an increase in business orders with a typical delay of nine months.
Sector Recommendations: Technology and Cyclicals
In light of its analyses, Macquarie advises investors to boost their positions in technology and artificial intelligence-related stocks. Key additions to their model portfolio include:
- New Stocks: NextDC (NXT), Seek (SEK), and Paladin Energy (PDN).
- Established Holdings: Xero (XRO), Megaport (MP1), and Goodman Group (GMG).
Additionally, they have incorporated cyclical exposures through Lovisa (LOV) and Webjet (WEB) from Macquarie’s recommendations for smaller and mid-cap companies. This strategic shift anticipates that enhanced global growth is likely to stabilise bond yields, notwithstanding potential aggressive interest rate cuts by the Federal Reserve.
Macquarie has also increased its stake in Commonwealth Bank (CBA) while reducing its exposure to bond-sensitive stocks such as Transurban (TCL) and GPT Group (GPT).
Earnings Potential in FY26
According to Macquarie, the current strength of the market transcends mere multiple expansion. They foresee that the forthcoming improvements in the global environment will translate to upward adjustments in earnings, predicting a 12-month lag between enhancements in Macro Velocity and profit growth.
Real-time data on household spending reflects a more uplifting narrative than quarterly results imply, suggesting a trend toward continued growth. Historically, consumer spending tends to accelerate following interest rate cuts, supporting a favourable outlook for domestic demand.
Challenges Ahead
Despite the optimistic outlook, Macquarie recognises that the global easing cycle is nearing its peak rather than its bottom, with some central banks having concluded their cutting regimes. For instance, Switzerland has enacted zero rates, while Canada, Denmark, and New Zealand are limiting further easing measures.
A significant concern is the potential resurgence of inflation, which could compel central banks to raise rates in response to stronger growth momentum anticipated in 2026. Furthermore, tariff-related inflation pressures might accelerate this timeline.
For Australian markets specifically, a pertinent challenge remains the disparate impact of technology cycles compared to commodity booms. Unless there is a shift in China’s growth strategy back towards property and iron ore, the ASX may lag behind its global counterparts, despite improving fundamentals.
Market Positioning and Future Prospects
Macquarie’s updated portfolio has a beta of 1.07, reflecting a slight increase from 1.0 due to the enhanced cyclical exposure. Although healthcare continues to be the primary overweight sector, its weighting has been reduced to accommodate growth-sensitive sectors.
The analysis indicates that Australian equities are poised to continue benefiting from supportive global liquidity conditions. Historically, the upcoming two months tend to exhibit more volatility but may present advantageous entry points for risk assets.
In summary, Macquarie’s informed outlook encourages investors to recalibrate their portfolios to seize on prevailing economic trends, particularly in technology and cyclical sectors, while remaining vigilant about potential risks that could disrupt the current trajectory.
