Some Australian market sectors are performing stronger than others as we head further into earnings season.
The S&P/ASX 200 Index (ASX: XJO) posted a healthy 2.4% gain in July, while the All Ordinaries Index (ASX: XAO) climbed 2.6% higher over the month, Macquarie Group Ltd (ASX: MQG) data reveals.
"Australian equities rose in July, with the ASX 200 up +2.4%. The key theme of the month was the rotation from leaders to laggards, a phenomenon that often occurs at the start of a new financial year," Macquarie said in a note to investors.
The S&P/ASX 200 Resources Index (ASX: XJR) gained 4.5% over the month.
"Resources (+4.5%) had a strong month, supported by a rise in commodity prices," Macquarie said.
The strength in Industrial resources was relatively broad, with strength across Iron Ore. Fortescue Ltd (ASX: FMG) shares gained 16%.
Lithium, oil & gas, and Coal increases also supported the monthly gains. Mineral Resources Ltd (ASX: MIN) shares climbed 33% and Pilbara Minerals Ltd (ASX: PLS) shares increased 20%.
Woodside Energy Group Ltd (ASX: WDS) shares climbed 13% higher, and Whitehaven Coal Ltd (ASX: WHC) shares jumped 19%.
"Consistent with the strength in Resources, China's stocks outperformed +3.5%," the broker said.
Strongest momentum by sector
By sector, health came out on top as the clear winner. The S&P/ASX 200 Health Care Index (ASX: XHJ) climbed 8.7% over the course of July, drastically outpacing the benchmark
The sector's gains were driven by index heavyweight CSL Ltd (ASX: CSL) shares, which climbed 13%.
"[CSL] was likely a key beneficiary of investors shifting some large cap money out of banks," the broker note said.
Pro Medicus Ltd (ASX: PME) and Resmed Inc (ASX: RMD) shares were also strong performers. The share prices increased by 13% and 8%, respectively.
The energy, technology, and utilities sectors came next in line. The S&P/ASX 200 Energy Index (ASX: XEJ) jumped 5.4% over the month. The S&P/ASX 200 Information Technology Index (ASX: XIJ) and S&P/ASX 200 Utilities Index (ASX: XUJ) climbed 5.2% and 5.1% higher, respectively.
The S&P/ASX 200 Materials Index (ASX: XMJ) climbed 4.1% in July, while the S&P/ASX 200 Real Estate Index (ASX: XRE) and the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) rose by 3.2% and 3%, respectively.
Industrials and communication services posted some gains over the course of the month, albeit at a lower level. The S&P/ASX 200 Industrials Index (ASX: XNJ) rose by 2.7% and the S&P/ASX 200 Communication Services Index (ASX: XTJ) increased by 2.2%.
Meanwhile, the worst-performing ASX sector was financials, with the S&P/ASX 200 Financials Index (ASX: XFJ) falling 1%.
The second-worst sector was consumer staples, with the S&P/ASX 200 Consumer Staples Index (ASX: XSJ) posting a small 0.4% gain.
Macquarie's outlook
The broker said in its note to investors:
Our bottom-up FY25 EPSg forecast is a decline of 3.2%. If this proves correct, it will be the third year in a row of declining earnings. At this point, our team forecast a relatively weak EPSg rebound of +2.2% in FY26. Unfortunately, August is typically the peak month for downgrades, as conservative guidance re-sets the earnings bar lower. But driven by global rate cuts and economic momentum, we think Australia's economic activity will improve, and support earnings upgrades over FY26.
Seasonality outlook. After the positive returns that typically occur in July, the next two months are likely to be disappointing. Over the last decade, August has been the third worst for returns, while September is the worst (and usually negative). To the extent this negative seasonality plays out again in 2025, it would provide another opportunity for investors to buy in expectation of a pick-up in growth in FY26.
