The S&P/ASX 200 Banks Index (ASX: XBK) is in the green at lunchtime today, up 0.33% as of 1 pm. The index is down 1.55% over the month but 15.81% higher over the past 12 months.
This 12-month growth has been reflected in some of the banks' share prices too.
Over the last 12 months, Commonwealth Bank of Australia (ASX: CBA) shares have risen 29.15%. Westpac Banking Corp (ASX: WBC) shares have risen 13.69% over the same period, and National Australia Bank Ltd (ASX: NAB) shares have risen 0.51%. ANZ Group Holdings Ltd (ASX: ANZ) climbed 5.99% higher over the year.
Outside of the major big 4 banks, Bendigo and Adelaide Bank Ltd (ASX: BEN) shares have fallen 2% over the year. Bank of Queensland Ltd (ASX: BOQ) shares have risen 20.29%, and Judo Capital Holdings Ltd (ASX: JDO) shares have risen 11.69% over the same period.
In a recent note to investors, Macquarie Group Ltd (ASX: MQG) said its Macro Strategy team expects growth to remain weak in 2025 before picking up towards trend in 2026.
They expect consumption to improve, but remain below trend, while business investment shows little growth given the uncertain global environment and weak profitability. Despite rate cuts, stretched housing affordability is expected to limit housing activity.
Which macroeconomic variables matter most?
According to Macquarie's strategy team, there are four key macroeconomic factors (across six variables) that can explain the majority of absolute bank performance over the past 20 years.
- The housing market
- Sentiment – including consumer expectations and business confidence
- Construction activity – including residential and non-residential building approvals
- Labour market – including the unemployment rate
Macquarie combines these six variables into an econometric model to explain absolute bank performance since 2004.
Macquarie notes that while the housing market is showing early signs of a recovery, price growth remains subdued. Similarly, sentiment measures, while off their lows, generally remain below average.
Construction activity is another modest positive, with the recent improvement in approvals creating a tailwind for the sector.
Meanwhile, the labour market remains a key source of strength for the macro outlook and banks.
Indeed, looking at the recent performance of each of these variables / factors, there is one clear standout that we think is supporting bank performance in an otherwise lacklustre backdrop, the labour market. Albeit […] there are signs that this is changing with unemployment unexpectedly increasing to 4.3% in June and leading indicators continuing to point towards a softening backdrop.
And Macquarie adds:
Interestingly we did not find including interest rate components (i.e. cash or mortgages rates, or bond yields) improved the performance of our models, suggesting that interest rates are likely captured within these other variables.
The model suggests that the labour market, and to a lesser extent, construction activity are tailwinds for banks, while the housing market and sentiment remain a drag.
Macquarie explained that while the overall macro backdrop remains broadly favourable for bank performance, it is more consistent with slightly above average performance (~10% y/y) rather than the current ~26% y/y returns.
Interestingly the performance of the major banks ex-CBA is broadly consistent with the macro model, suggesting it is CBA's ~30% y/y performance (and ~30x PE multiple) that is the primary outlier.
The modelled performance implies that the particularly strong bank performance in 2024 was not supported by macro fundamentals, with deviation between the modelled and actual performance in Nov-24 (when banks rallied 44% y/y) the largest in 20 years.
Macquarie's stance on ASX 200 banks
Macquarie confirms its neutral rating on ANZ and NAB with target prices of $27.50 and $35, respectively.
The broker has an outperform rating on Judo Capital and a 12-month target price of $1.80.
It maintains its underperform rating on CBA, Westpac, Bendigo Bank, and BOQ with target prices of $105, $27.50, $10.25, and $5.75, respectively.
