Market Snapshot: June 2026

Summary

  • The oil price is down but other ongoing effects from the Iran War are not, as the higher energy prices increase inflation, placing upward pressure on interest rates. This has increase bond yields making them a little more attractive as the probabilities of lower cash rates around the world has dissipated.
  • In Australia, interest rate expectations are potentially one more rate rise, but economic growth weakness has resulted in markets less confident of a rise with probabilities pointing to an equal chance of cash rates staying at 4.35%. Overseas, the higher inflation resulted in rate rises by the European Central Bank and Bank of Japan, but this has placed their cash rates at a still low 2.4% and 1%, respectively.
  • Whilst the global economic growth expectations have been revised down by major economic agencies, most sharemarkets have soldiered on producing solid returns for June. Strength came from Global Small Companies, but the small Australian Companies have lagged as technology-related stocks have been the big performers.
  • Our core investment message remains despite persistent downside risks from high sharemarket valuation in USA and the energy crisis. This means disciplined risk management rather than aggressive positioning changes. Shares continue to offer an attractive risk premium in specific markets, as do conservative bonds, but returns may be challenged from occasional short term volatility. Avoiding panic (selling) decisions continues to be a crucial investment issue today for long-term investors.

Chart 1 … Global Small Companies outperform for a change!

Source: Morningstar

What happened last month?

Markets & Economy … Global economy downgraded for 2026

  • The key economic issue during June continued to be the rising inflation around the world, whether Australia, USA, Europe or Asia. The higher inflation is resulting in global economic growth downgraded for 2026 and this appears to be consensus for the Australian economy too … i.e. weaker economic growth than previously expected.
  • Despite this bleak economic situation, markets generally advanced as they were supported by solid corporate earnings and ongoing capital spending on artificial intelligence. Global smaller companies outperformed larger companies (which seems rare in recent times), but the strong returns were somewhat broad across Europe, USA, and Japan. Unfortunately, Australian smaller companies were underperformers returning negative 2% in June.
  • Bond yields steadied a little resulting in solid returns during June and with high equity market valuations from the USA, and many fixed interest markets yielding over 6%pa, fixed interest does appear relatively attractive.
  • In Australia, there was no interest rate increase by the RBA but markets still have the potential of one more rate rise for 2026 priced in, so inflation and economic outcomes will likely be the determinant … high inflation means a rate rise, whilst a weak economy means it will probably be unchanged … unfortunately, neither outcome appears particularly positive.
  • Whilst unemployment continues to appear very healthy around the world, the forecast weaker economy may mean a slight increase, but markets appear to be marching to a different beat … and that beat has been momentum, where the strong keep being strong.

Outlook …

  • As mentioned, markets are pricing in the potential of one more interest rate rise by the Reserve Bank of Australia in 2026 although this likelihood reduced during June.
  • Bond yields are only a little higher suggesting economic growth is likely to be positive but strongly so.
  • US markets continue to be near record high valuations and are generally forecast to be weaker than non-USA sharemarkets over the next 10 years. This doesn’t mean any imminent crash is likely, but caution should always be appropriate with expensive markets.
  • We continue to believe portfolios should be underweight USA shares and high yield (junk) bonds due to these near record high valuations. Markets continue to price in potentially higher cash rates for Australia (~4.5% by the end of 2026), but conservative bond portfolios both global and in Australia, are providing strong expected returns over 5%pa.
  • Our current beliefs are that new investors should dollar cost average into sharemarkets and long-term investors should stay invested for the long-term but expect and get used to higher volatility.
  • Diversification continues to be essential. Maintaining a balance between domestic and global exposures remains a prudent approach as 2026 unfolds. Rebalancing as pricing opportunities arise also continues to be appropriate for established portfolios.

Major Market Indicators

Sources: Morningstar, Trading Economics, Reserve Bank of Australia    

Market Expectations of future RBA Cash Rates

The RBA hiked early May has no more than 1 more increase priced in for 2026:

30 June Market Valuations – Price to Cash Earnings


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General Advice Warning
The information provided in this article is for general information purposes only and is not intended to and does not constitute formal taxation, financial or accounting advice. McConachie Stedman does not give any guarantee, warranty or make any representation that the information is fit for a particular purpose. As such, you should not make any investment or other financial decision in reliance upon the information set out in this correspondence and should seek professional advice on the financial, legal and taxation implications before making any such decisions.