S&P/ASX 200 Index (ASX: XJO) shares are up strongly on Friday, sitting 1.04% higher at 8,230.5 points at the time of writing.
This is the seventh consecutive trading day in the green for the ASX 200 following high turbulence in the first part of last month.
Market volatility was brought about by US President Donald Trump revealing harsher-than-expected US reciprocal tariffs on 2 April.
Markets tumbled, and the US S&P 500 Index (SP: .INX) went close to official bear market status (a 20% fall from the most recent peak).
In Australia, the ASX 200 entered an official market correction (10% off the most recent peak) and was down 14.2% by 7 April.
A global rebound began after Trump announced a 90-day reprieve on the full tariff rollout and applied a 10% baseline tariff only instead.
Plenty of ASX shares investors enthusiastically bought the dip, but the volatility isn't over yet, according to Macquarie.
The broker says another dip could be coming this month, as negotiations between many nations and the Trump administration continue.
Here are eight key takeaways from April, according to a new note from the broker.
Macquarie's verdict on ASX shares in April
Earnings downgrades dominate in April
Macquarie said earnings downgrades resumed in April, with net FY25 earnings per share (EPS) revisions for ASX shares down 16%.
FY26 EPS growth forecasts also fell, mainly due to downgrades for ASX mining shares.
This is due to tariff uncertainty and concerns about the US economy, in particular.
The broker expects net negative updates from various ASX companies at the Macquarie Conference, which begins on Tuesday.
Recession-like earnings downgrades for US shares
Macquarie also notes accelerating FY25 EPS downgrades for US equities, down a net 46%, which is "already more like a recession than a slowdown".
Bear market rally nearing its peak
A bear market rally is a short-term rebound during an overall downward trend. It tricks investors and makes us feel optimistic.
Macquarie says its base case is that "we are near the top of a Bear Market Rally (BMR), PEs are still high and the economic hit from tariffs is still to come, and this drives earnings lower."
Market valuations still elevated despite April pullback
Macquarie said ASX shares are trading at a forward PE of 17.7x, which is above average and therefore susceptible to another pullback.
The broker said:
This is 1 turn lower than the Nov 2024 peak (18.8x), but still not cheap at 1.6 standard deviations above average.
We still see downside risk to valuations as growth weakens, with a peak to trough fall of ~4 turns.
This would leave PEs slightly above the average since 2000.
Concentration risk in ASX shares indices
Macquarie points out that Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES) shares represent large chunks of the ASX indices, which creates risk if they both fall rapidly during another market pullback.
This follows a strong run for both stocks, as shown below.
CBA shares now represent 11.2% of the S&P/ASX 300 Index (ASX: XKO) and trade at a P/E of almost 28x.
Wesfarmers trades at a P/E of almost 35x.
Macquarie said:
If you excluded CBA and WES, the ASX 300 PE falls to 16.5x, which is still high but only 1 standard deviation above the long term average.
This concentration risk highlights how a few expensive ASX shares can distort market performance.
If CBA and Wesfarmers shares fell significantly during a downswing, this could lead to a sharper correction for the broader indices.
Sector performance: ASX tech and retail shares risk reversal
ASX technology shares, cyclical retail shares, and bank shares led the rebound in April.
Macquarie said if we are in a bear market rally, it is likely these stocks will underperform if the market declines again.
Macquarie names five relevant ASX shares in these categories with above-average PEs.
They are TechnologyOne Ltd (ASX: TNE), JB Hi-Fi Ltd (ASX: JBH), Westpac Banking Corporation (ASX: WBC), Wesfarmers, and CBA shares.
What's next in May?
Macquarie says ASX shares may "test the April low" in another dip in May.
The April low was 7,343.3 points for the ASX 200 on 7 April.
This implies a potential 10.8% fall during May and a second chance for ASX shares investors to buy the dip.
The broker explains:
Trump has blinked more than once, reducing downside risks, but we see the fallout from tariffs (and weakening hard data) driving stocks to test the April low.
Likely 'muted' market reaction to federal election
Macquarie expects a mild reaction to the likeliest outcome of the Australian federal election tomorrow — a minority ALP Government.
The broker says:
Betting markets show an 85% chance the ALP wins the election, but not enough seats for a majority.
The last time this occurred was 2010, and the All Ords fell 1.3% the following week.
