May 2026: Climbing the wall of worry

• Investment Insights
• The Active Investor Podcast w/SGH

More places to find our podcast:

Apple Podcasts | Youtube

May 2026: Climbing the wall of worry

Steve Hiscock:

Hello to everyone listening to our podcast, The Active Investor with SGH. I’m Stephen Hiscock, the chair of the company, and it is my pleasure to be your host again for today’s episode. In today’s podcast, we’ll be looking at what happened over April 2026 and be discussing the outlook looking forward. We are fortunate again today to have our chief investment officer, Rob Hogg, joining us.

Hi, Rob. Welcome back again.

Rob Hogg:

Oh, thanks, Steve. Great to be back.

Steve Hiscock:

And it’s been a surprisingly strong month in equity markets in April, despite all the volatility, despite the oil price moves and so on. Can you talk us through what the key market moves were in April?

Rob Hogg:

Yeah, no, look, absolutely. And as you’ve said it certainly was a pretty strong rebound in some markets, in particular the US. US markets bounced back by far the most after their losses their losses in March. European markets were a little soggy, but they were still up. So, US markets were up really from a range of 7%, that was the Dow, all the way to 15 and a bit percent for the NASDAQ with the S&P and the Russell, which is the Russell 2000, which is a measure of smaller company share price performances.

So a very strong bounce back from those various sectors in the US. Europe, as I said not quite as strong in terms of their rebound. We’re talking here about three or 4%. This is continental Europe. UK actually even softer than that, only 2%. In Asia, quite mixed. The Nikkei bounced back incredibly sharply.

Indeed, it was about the most performing developed market in the month, up around 16%, but it had a very weak March so bouncing back from that. Here in Australia, just looking at the ASX 200s, the price index, that was only up around 2.2%, and the accumulation index just fractionally more than that.

One of the things we’ve been talking about is that we’re really starting to get some clear indications from the market about who they think the relative winners and losers will be. But just looking to other markets quickly, bond markets, we saw the relatively small moves in bond markets. Yields were generally higher but not hugely. Of course, they’d risen enormously the previous month, and we still saw a bit more of this sort of bear flattening as it’s described where shorter-term rates, which are more sensitive to things like inflation expectations and via inflation expectations and oil prices sensitive to changes in expectations about monetary policy.

That’s where we saw the slightly larger move. So, in Australia, the two and the three-year bonds here up by around 11 basis points that, and in, in the US up around seven, and in both cases those shorter-term yield moves were a little bit more than moves for longer maturity security. So that, I think, suggests to us that in terms of the policy outlook, monetary policy outlook, if anything, markets were inching towards slightly higher monetary policy moves over the coming over the coming months through to the end of 2026.

If we look at commodities we’ve spoken before about using copper, the copper price as an indicator of global sentiment about growth. Now it’s not perfect, but it’s possibly the least imperfect measure of sentiment on growth. And as you probably expect, the copper price rebounded a bit almost 6%.

The more intriguing one, is the fact that the oil price the oil price went up again month on month. A lot of that was at the back end of the month. So, the near futures, so this is the June contract, that was up around 3.6% to about $105. But we’ve been tending to focus more so on the longer dated futures of December because that gives us a sense of the profile of what investors think that the oil price will do, and that was up again as well to $80 as at the close at the end of April.

Intriguing, that we saw better equities, we saw better copper and yet we saw higher oil prices, but I think some of that’s explained by the timing, or the oil price really picked up towards the very end of the month and that’s possibly how these sorts of numbers coexist over the month.

Steve Hiscock:

And Rob, we saw a much stronger Australian dollar against the US dollar in particular. Can you talk about that?

Rob Hogg:

I think yeah, so the Aussie dollar moves and that as we all know, the Aussie dollar is I guess a little bit like copper regarded as a bit of a bellwether for sentiment about growth.

So, the Aussie dollar rose from around 69 US cents to around 72. So that’s obviously a pretty big move over the course of the month, but consistent with what we’ve seen with equities and consistent with what we saw with interest rates as well and copper. But so again, the only inconsistency is that end month on end month, we’ve got a higher oil prices, which if anything you’d think might be actually depressing sentiment about growth.

But month on month, that wasn’t quite the case in in April.

Steve Hiscock:

And talking about that, Rob, in your April monthly report, you talk about the fact that the market has voted on the impact of the oil price spike. Can you talk about what you mean there?

Rob Hogg:

Yeah. So, we looked at this we looked at this a month ago just to see what the market seemed to be saying about which economies would be most impacted in terms of the oil price and inflation effect.

And when we were speaking a month ago, we were talking about the fact that European equity markets had been most negatively affected in March as the oil price first rose and US equity markets were least negatively impacted, and really, if anything, we’ve seen a continuation of these same patterns in April.

So, US equities rebounding by more than pretty much any other market, and European equities, whilst they did rebound, they were weaker than most other equities. So, I think the market has been consistent with its view that the key impacts of the oil price will be most negatively felt in continental Europe and least negatively impacted will be the US economy.

And this is consistent with what we know about energy dependency, the US being close to net neutral in terms of its dependency, whereas Europe, as we know, is very dependent on imported oil. And we’ve seen the same thing reflected in bond markets too. So, we spoke last month about the fact that changes in inflation expectations and interest rate expectations change the most in the UK, the next most in continental Europe, and amongst the least in the US.

And we think that’s completely consistent with what we see in, as far as equity market moves are concerned. So, the, and look, I think the reason we’re really looking at this is because it’s still very difficult to actually see what the oil price damage will inflict on economies as such.

We’ve only got sentiment indicators, which we’ll come back to in a sec. So that’s why we’re trying to back as much as we possibly can out of market moves to try and get a sense of what is being discounted, what are the things, how is the market voting and then as the data comes out, we’ll be able to match up whether or not that’s optimistic or pessimistic or whatever combination it may be.

Steve Hiscock:

With the higher oil price and as you say in the report and mentioned today that, the higher for longer oil price potentially, it’s got to have an impact on market expectations about inflation. Can you talk us through that because clearly there’s been some moves there?

Rob Hogg:

Yeah, there have.

And that was at, one of the other intriguing things that early in the month of April, there was talk of a ceasefire, and that’s really what sparked the rally in equities from that point. We know that’s been very uncertain since, and we’re still in very uncertain and very opaque times but toward the back end of the month as oil prices started to rise again, so inflation expectations started to rise and we’d look at the bond market and we can back out of bond market pricing, what investors are forecasting for inflation and toward the back end of the month, we saw inflation expectations start to rise a little bit, and that’s after they’d fallen a little bit after the ceasefire talk.

And that’s consistent with what we’ve seen in the shorter end of government bond yield curves around certainly the Anglo countries. We’ve seen that sell off toward the end of the month, consistent with the pickup in oil at the end of the month, which is consistent with this sort of higher for longer. So, we’ve seen the December oil futures drift higher as well, along for that matter with the near-term futures as well. So really, to put it in a nutshell, the first half of the month was a deal more positive in many ways. The second half of the month was a little bit more about this higher for longer, higher inflation risk and rising bond yields a little bit towards the end of the month, more so at the end of the month.

Steve Hiscock:

So pretty much around the world, inflation expectations in the last half of the month rose principally as a result of the oil price. What are the central banks doing? Because there were quite a few central bank meetings in the last half of the month, wasn’t there?

Rob Hogg:

Yeah, there were. And we of course, like everyone in the market really focus on the story in the US.

So, there’s a lot of there’s a lot of nuances in this. So, the Fed who met on April the 29th, they did what most people were expecting, and that is to say they left the key federal funds rate, so their key monetary policy benchmark rate, they left that rate within the range of three and a half to three and three quarters.

So there, no surprise there but there was what you might describe as a hawkish surprise. And that was specifically that in releasing the statement at the end of the committee meeting there’s always a bit of a blurb about there can be a bit of a blurb about who might dissent from the decision and whether there’s any members of the committee that really need highlighting and of what, and there are a couple of things here.

One Governor Myron who you might remember is has been most recently appointed by President Trump. He continues to vote for rate cuts, but what was bearish, if you like, or hawkish out of this was that three members of the policymaking committee did not support the inclusion of an easing bias in the statement.

And what all of that means is that if not for their disagreement, it seems that the Fed would have said, “We’ve left freights on hold, but we have an easing bias and that would have given the market a very clear indication that on the basis of what we know today, or a couple of days ago, this was the case here, the most likely move, next move was to see rates actually cut.”

But because there wasn’t a consensus on that the that wasn’t included in the statement and that’s left the market feeling that the policy outlook is still one of no rate cuts really anytime soon. And of course what’s really dividing the committee is trying to balance the inflation effects from higher oil prices, which in and of themselves might speak to higher rates, but you have to balance that, of course, against the fact that higher oil prices increase costs and act not unlike a tax in the short term and tend to be depressing on activity and spending.

So, it’s, that balance which every central bank will be facing our own included, but it was really the fact that three members of the committee did not support the inclusion of this easing bias in the statement. That is what was most impactful on the market on the day. And in fact, pretty much the entire move in the bond market occurred on that one night in the follow up the following hour or so after this statement was released.

Steve Hiscock:

And Rob, there, therein lies the dichotomy, really, because you’ve got, on average, the world economy moving towards stagflation not necessarily in that area at the moment, but inflation expectations have increased you’d have to say that growth expectations are probably more, more muted now, so we are moving towards that and yet the equity market is up.

It certainly has taken a few investors by surprise, it’s fair to say.

Rob Hogg:

Oh, absolutely. But it’s tricky because if we wake up tomorrow and the Straits of Homos were open and the almost unbelievable happened that there was some agreement reached, we will then go back to the underlying fundamentals.

So we, in a way, in a sense, we’d go back to the very start of the year, and at the start of the year whilst we knew equity investors were very optimistic, and we thought perhaps a little bit too optimistic, part of that optimism was down to the fact that fiscal spending in this year, 2026, was expected to be more positive and make a more positive contribution to global growth.

So, we’re talking about Japan and spending there with the new government or the new prime minister, we’re talking about Europe, defense and infrastructure related spending, and we’re talking about the US with tax cuts. So, if we were to revert back to those fundamentals of which are basically equal higher fiscal spending that’s not an altogether negative background for equities.

But of course, here and now, we have this oil price spike. The market, as you’re suggesting, is tending more towards downgrading growth expectations and upgrading oil price expectations and the duration of higher oil prices. So it’s still in this sort of zone where, yes, on balance, day by day as the oil price stays higher, longer and longer, yes, growth expectations will be edging lower but it’s important as well not to lose sight of the fact that if indeed there is a resolution we could actually go back to quite a reasonable fundamental background.

Steve Hiscock:

But then if we look at Australia, and I know you, you and the team have been tracking several indicators about this, but it’s fair to say Australia, the confidence in Australia has fallen, and do you want to talk to some of the indicators you’ve been looking at and what the implications are?

Rob Hogg:

Yeah, so Australia’s in a tricky position some of its timing but the key issue as we all know here is inflation but it’s a little bit more than that.

It’s also the timing of it all too. So ahead of the outbreak of the Middle East war the RBA had already raised rates, and inflation had already begun to pick up. So, they raised rates, the RBA in Feb and March, and that’s really before we started to see the full impact or almost any impact actually, that the pickup in oil price.

So, we started, in other words, in a situation where we already had upward momentum in inflation, we already had an economy that seemed to be growing somewhat at a slightly stronger pace than capacity. So, we’re already in a bad spot, and then very unluckily, we are in a bad spot at the wrong time as well.

So if you then overlay the increase in inflation we’ve seen with the March inflation, March monthly inflation report that’s just come out, that yes, as everyone expected, petrol prices up on the back of oil prices equals inflation up and it could well go a little bit higher too in annual terms when we get the figure for April.

So, we just started a really tricky spot, but we’ve been seeing this swing in policy expectations and this, the dampening effect of that for a number of months now. The Australian equity market has really not gone terribly far in quite some months. If you just look purely at the price index, if you add back in dividends, there’s a little bit more, but we would be one of the weakest performing equity markets over the last nine or 10 months, and the reason for that is likely to include the fact that the outlook for policy had, has gone from rate cuts through the middle of last year to expected rate hikes, then actual rate hikes, and then more rate hikes, and the risk is that then negatively impacts sentiment, which it’s done both for households and for companies.

But then the next really big step, and it doesn’t always follow, but the next really big step, if it’s households cutting back on discretionary and other spending, and corporates may be putting off spending and hiring decisions, then the whole thing becomes even more negative. So what we’ve been tracking is the sentiment indicators, so household sentiment, consumer sentiment is at the lowest level, it’s been on some measures since 1973 that just happens to be when this particular survey began. Corporate sentiment we know has softened as well, and just in the last month, we’ve started to get some earnings downgrades and in some cases it does seem fair to point to Middle East related uncertainties as certainly a partial reason for some of these earnings downgrades.

Steve Hiscock:

So Rob, before we get to the Australian companies, because they’re very important, but just to drill down a bit more on the inflation number, so the trim mean as you call it, is, which is the central core of the inflation measure is only in inverted commas 3.3%, but the headline number was a lot higher than that.

And do you think that the headline number could get as high as 5%?

Rob Hogg:

Yeah, certainly there are analysts that, that are suggesting it could in … yes, absolutely. But as you point out, the trim mean is the main game here and it’s the main game because what the reserve bank is trying to do is make a judgment about really the ongoing momentum in broader prices and trying to strip out spikes that can occur with, say, food prices, or in this case, petrol prices.

And we’re going to see volatility here because we know that oil prices as the war started spike, I’m just thinking petrol prices here that we all see at the bowser, they spiked very sharply, and then of course the government’s implemented some tax cuts within the oil pricing mechanism and we’ve seen those prices come back quite a deal and they’re back a good deal closer now to where they were before the war started. So, there’s volatility there and as I say before, we get this kind of stuff with food prices. And we’ve had occasions in the past where there’s been natural disasters in Queensland and banana crops have been wiped out and banana prices have spiked and we’ve seen huge contributions to the CPI from bananas alone. So that’s why we tried to strip some of this stuff out. So yes, trim mean 3.3%, it’s more than three…

Steve Hiscock:

Yeah. …

Rob Hogg:

…and it’s certainly more than 2%, 3%, which is the band, and more than all of that, it’s what the RBA has said they look at, and as a consequence, the market looks at it too.

Steve Hiscock:

Yeah. But the household, it’s fair to say it’s being hit by the broader measure.

Rob Hogg:

Yeah.

Steve Hiscock:

This is the thing, right? Yeah. So this is going to feed through.

Rob Hogg:

That’s right. Absolutely. And the household sees the petrol price at the service station, there is probably no clearer indication of price change than petrol prices something we can pretty much all relate to. Yeah, so you’re absolutely right.

That’s the headline, that’s what hits people in the face, if you like. Whereas, yeah, the RBA and the market are looking this sort of underlying stuff, because that is genuinely what ends up driving policy.

Steve Hiscock:

Okay, great, Rob. Before we move into Australian specific earnings, can we talk first about global earning expectations because they have begun to come off a bit, haven’t they?

Rob Hogg:

Yeah, they have. And this is important because changes in earnings expectations really do drive equity markets. And we have just started to see in the last month or so, the very, very beginnings of a waning, if I can put it that way, in terms of earnings expectations. And we know there are reasonably strong correlations and probably this causality as well in some of these global purchasing manager indices.

But there’s a significant bifurcation difference, if you like, between the underlying components in these purchasing managers indices. And what I mean by that specifically is that the manufacturing side of the global economy is still doing relatively well. It’s the services side of the global economy that’s been really negatively impacted by the oil price.

So in a sense, this is like the COVID story as well. During COVID, of course, with all the shutdowns across the globe, it was the services side of the economy that was impacted first and by the most, manufacturing inevitably follows that and that’s what we’re seeing now. Services are being impacted most and this is as people change their spending maybe canceling things they might otherwise have done and maybe canceling travel and so on and so forth.

So we started to see on net, on balance, that earnings expectations have started to move a bit lower. And as I said, these, it’s these earnings expectations. So these are analyst expectations of company earnings. If they continue to ever weigh that will definitely weigh on global equity markets.

Steve Hiscock:

Yeah, eventually it will have to. And then specifically on Australia, there have been some downgrades already to come forward looking forecast by some big companies. Do you want to talk through some of the big ones?

Rob Hogg:

Yeah, look, I’ll start with a name that everybody knows, Woolworths. So just yesterday, so the last day of the month, they came out with some commentary that was a bit negative.

They spoke about what they were saying that while sales momentum is good, but there are clear signs that consumer sentiment has weakened materially since the company’s February result. And Woolworths really perceived that consumer anxiety is at its highest level for years.

They also spoke about inflation pressures from their suppliers. They’ve already seen increased supplier prices in fresh and dairy products but they were saying yesterday that this is now spread into grocery and long life products with suppliers in the last few weeks seeking price increases.

Net they’re, they said we’re seeing early signs that the conflict in the Middle East is impacting our customers and team, many of whom were already experiencing significant cost of delivering pressures before, the war. So that’s look, probably if you like the sort of benchmark commentary, given that Woolworths is has, is obviously one of the largest companies in Australia with an incredible reach across the population.

But we’ve seen other profit warnings. Cochlear had a profit warning, and that was partly related to, weaker developed market cochlear implant demand and Middle East order cancellations. That was quite a surprise at the time. Clean Away waste management, they’ve come out with a profit warning, and this is not at all unexpected.

They were warning of higher fuel costs and a Middle East related reduction in activity. And we’ve seen other companies EBOS group in healthcare they cited elevated fuel and energy costs impacting healthcare distribution logistics. But of course, what do they say about an ill wind?

For Ampol, this was actually what’s going on has actually led to an earnings upgrade for Ampol where management there explicitly cited that global refining margins have expanded following the escalation in the Middle East. So for Ampol what’s going on, the higher oil price, higher refining margins, unambiguously good news, but the overwhelming majority of companies are finding that things are tougher still. So we spoke about this before, that the catch for Australia was the underlying inflation trends we already had and just at the wrong time. So the higher oil prices just added to the pressure on households as, and so adding to the pressure that’s already come from high mortgage rates and so on.

Steve Hiscock:

Yeah. And it’s difficult in that scenario not to see Australia continue to underperform. However the issue is that if you put your money offshore with a rising Australian dollar as strength, particularly against the US, you’re not necessarily going to get the full benefit of global equity resurgence as well.

Rob Hogg:

No, that’s right. And I think also really the story looks least worst, as we’ve been saying for the US because the outlook for Europe looks pretty dire as well. Indeed, probably worse than here. So global equities you’re really looking at a forward looking scenario where exactly as the market is begun to price, the US seems likely to be relatively less scathed less impacted by what’s going on.

Australia is being impacted Europe is being impacted, parts of Asia absolutely being impacted as well. Yes, it’s not as easy as saying Australia versus the globe. No. … there, there’s a lot of a lot of subtlety..

Steve Hiscock:

No, that’s absolutely right. If we look forward from here, in your monthly report you say the critical variable from here is the duration and resolution of the Middle East conflict, which clearly, as we know, remains highly uncertain, as you note.

And perhaps in looking at the outlook, can we maybe split it into two scenarios which you do in your excellent report. The first one is okay, so what happens if there’s a resolution of the Middle East conflict in the near term?

Rob Hogg:

And look we’ve had a bit of a sneak preview of what this might look like, Because we do get days in the market, of course, where something very positive.

There’s a positive, very positive announcement from the Trump administration about ceasefire, so on and so forth. And we see almost immediately on the back of that a rally in equity prices, a rally in the Australian dollar. We see lower shorter term interest rates, lower inflation expectations.

And I think that’s exactly the blueprint for what we’ll see should we have this near term resolution.

Steve Hiscock:

Yeah. So the market would be, would react positively. Yes. Before retreating back to the underlying fundamentals.

Rob Hogg:

Yeah.

Steve Hiscock:

Which may not necessarily be as positive as the initial spike. So that’s the near term resolution scenario.

What do you think is likely if the conflict is a bit more protracted?

Rob Hogg:

That’s you, and you spoke of it earlier, that’s this stagflation story where you have higher inflation and that is, has already led and probably would lead to further rate hikes. And all of that really weighs on growth.

So a protracted conflict is the one that would send you toward that stagflation, high inflation, low growth scenario, whereas the near term resolution is the one where we’d see, as we’re just saying we’re very likely to see a rebound in growth expectations and easing and inflation concerns and monetary policy tightening concerns.

So, two very different…

Steve Hiscock:

Yeah. …

Rob Hogg:

…outlooks. And that’s why we spend all this time trying to back out day to day, what are markets currently pricing? And just to emphasize all that again, they are pricing a weaker growth outlook today, weaker than the start of the year. They’re pricing in higher interest rates looking out to the end of the year than they were at the start of the year.

They’re pricing in higher inflation now than they were at the start of the year. So the market has moved and changed its mind. What the market is clearly not pricing is a recession, but as we spoke about last month the increase in the oil price that we’ve seen does not seem to be large enough. It’s not as large as in previous episodes where higher oil prices have then been followed by a recession. So the fact that they’re not pricing a recession is probably a fair call from what we know today.

Steve Hiscock:

Which I guess brings us to our current portfolio positioning, which is that we remain cautious, obviously, because the two scenarios are so very different for equity markets, but we’re not -and while we are underweight, we’re not significantly underweight because that’s taking a bet, a very specific bet on one outcome, and we -just don’t have enough information on that yet, do we?

Rob Hogg:

No, absolutely not. We may be many things, but we’re not geopolitical strategists.

Steve Hiscock:

Right.

Rob Hogg:

So yeah, exactly as you say.

But there’s really no justification to be making big bets on guesses really about the future. What we do is focus on the current portfolio. We focus on do all, are all of those holdings, all of those company individual holdings, security holdings, are they the best holdings to have for the current uncertain environment?

Are there any that are at risk? And we’ve already examined a number of our holdings that we felt might be at risk from profit warnings. But also the these types of situations throw up opportunity as well and we’re looking for, still looking for stocks, companies that we think may have been unfairly punished by what we’ve seen over the last month and a half or so with the higher oil price.

Steve Hiscock:

And that’s the real skill of active portfolio management. There are opportunities and volatility that come along where the market just overreacts either positively or negatively, and that’s what you’re looking for. Rob, thank you again for so much for your time.

Rob Hogg:

Pleasure again today.

Steve Hiscock:

That brings us to the end of today’s podcast.

We looked at what happened in April 2026, and then obviously we looked forward what it means for investors. As we’ve mentioned for the last few months, the volatility and uncertainty surrounding equity markets, surrounding all markets, makes it very difficult to make very strong positions either way but we continue to do research on all the scenarios and monitor all the economic indicators as well.

We hope you enjoy today’s episode. Please subscribe so that you don’t miss out on future podcasts and follow us on LinkedIn, YouTube, Spotify, Apple, or wherever you get your podcast from. And please do let us know if you have any questions or comments. Until next time, stay informed and stay active.