Macquarie turns bullish on Australian stocks as global easing drives FY26 earnings optimism

Macquarie has shifted to a more constructive view on Australian equities, backing its stance with a new analytical framework that explains recent market strength and suggests further gains ahead.

The investment bank's latest research introduces "Macro Velocity" – a composite indicator combining global rate cuts and economic momentum – which has successfully predicted equity performance patterns since the 1990s.

Global Easing Cycle Provides Tailwinds

While Australian investors have focused on domestic rate cut timing, Macquarie highlights that global central banks have been easing since December 2023. By late 2024, nearly 60% of central banks were cutting rates, with the breadth of easing not seen outside a recession since the Russian debt crisis and Long-term Capital Management collapse in 1998.

This global liquidity injection has been amplified by artificial intelligence optimism, creating conditions similar to the late 1990s internet boom. The combination has driven price-to-earnings multiple expansion across markets, including Australian banks – a phenomenon that previously puzzled analysts.

NAB's latest business conditions survey provided additional evidence of improving momentum, with the sharpest rise in trading and profitability since the RBA began hiking rates. Macquarie's analysis suggests this improvement aligns with their Macro Velocity indicator, which predicts further strengthening in business orders with a nine-month lag.

Source: Macquarie Research, July 2025

Technology and Cyclicals to Benefit

Macquarie recommends investors increase exposure to technology and AI-related stocks. The key changes to their model portfolio include:

• Additions: NextDC (NXT), Seek (SEK), and Paladin Energy (PDN)

• Existing positions: Xero (XRO), Megaport (MP1), and Goodman Group (GMG).

The analysts also added cyclical exposure through Lovisa (LOV) and Webjet (WEB) from Macquarie's small and mid-cap recommendations.

The shift reflects expectations that stronger global growth will limit bond yield declines, even if the Fed cuts rates more aggressively.

Macquarie added Commonwealth Bank (CBA) while reducing exposure to bond-proxy stocks including Transurban (TCL) and GPT Group (GPT).

Earnings Upgrades Expected in FY26

The research suggests current market strength isn't just about multiple expansion. Macquarie expects the improving global environment to translate into earnings upgrades, with their analysis indicating a 12-month lag between Macro Velocity improvements and profit growth.

Macquarie says ASX earnings should improve materially over the next 12 months | Source: Macquarie Research, July 2025

Real household spending data shows a more optimistic picture than quarterly figures suggest, with monthly indicators pointing to continued acceleration. Historically, spending has accelerated after rate cuts, supporting the outlook for domestic demand.

Risks on the Horizon

Macquarie acknowledges the global easing cycle is closer to its peak than trough, with some central banks already done cutting. Switzerland has returned to zero rates, while Canada, Denmark, and New Zealand have limited further easing priced in.

The key risk is a pickup in inflation that forces central banks to hike rates, which could emerge from stronger growth momentum in 2026. Tariff-related inflation pressures could also accelerate this timeline.

For Australian markets specifically, the challenge remains that technology cycles favour different sectors than commodity booms. Without China changing its growth model back to property and iron ore, the ASX may continue to lag global peers despite improving fundamentals.

Market Positioning

Macquarie's new portfolio has a beta of 1.07, up from 1.0, reflecting increased cyclical exposure. Healthcare remains the top overweight but with reduced weighting, while staples exposure was also trimmed to make room for more growth-sensitive sectors.

The analysis suggests Australian equities could continue benefiting from global liquidity conditions, with the next two months typically more volatile but potentially offering better entry points for risk assets.