Market Quotes

"The ASX 200 is up almost 6 per cent from its March 23 lows, while the S&P 500 and the Nasdaq are up 11 per cent and 17 per cent, respectively, from their lows on March 30. The remaining question for investors is what happens next."

"We have found some opportunities to address that need in the portfolio in terms of that underweight of Energy particularly on the Energy Services side as we kicked off here in Q2 where we would pick off some names that have lagged this rally in the group here to help mitigate that risk in the portfolio going forward."

"Markets have a strong tendency to swing from one extreme to another… Following strong equities market returns in recent years… the mood has changed from optimism to extreme pessimism and this is being reflected in valuations… The question is whether… this is creating opportunities for the patient investor."

"We think the attention paid to the short-term Fed Funds rate is mostly wasted effort. Long-term rates, on the other hand, are very important since they drive asset allocation decisions for businesses and the valuation of long-term assets. Chronic budget deficits and growing government debt should theoretically lead to higher long-term rates—bad news for stocks—but the 'inevitable' continues to be postponed."

"Developed market shares, as measured by the MSCI World index, fell in Q1. A combination of weakness in US software stocks and risk aversion caused by the conflict in the Middle East weighed on global equities… US shares experienced significant volatility… and the S&P 500 Index fell 4.3%. That marked the weakest quarter for US large caps since 2022."

"Australian inflation has been sticky post COVID, which has encouraged the RBA to increase interest rates for the second time this year. However, one source of inflation (private credit growth) is re‑accelerating. And history shows that monetary policy alone cannot quell private sector demand for credit."

"Overall, the impact of the war on markets can be summarized as: oil up, dollar up, bonds down, stocks down, gold down. Crude oil prices have increased from about $65 per barrel in February to roughly $102 on 31 March…As of the end of March, the S&P 500 is down roughly 4% from its early February peak, and gold is down about 13.5% from its late January peak."

"Not a day goes by without financial pundits discussing the Magnificent Seven… The FPA Crescent Fund and FPA Global Equity ETF have owned a select few of these names—but only episodically when the risk/reward looked most attractive. As two of the three we own have appreciated and begun trading at valuations we believe offer a slimmer margin of safety, we have trimmed our exposure in favor of companies that are, well, out of favor."

"We have revised down our GDP growth forecasts to 1.6% by December, which is basically just in line with population growth. But we are not forecasting an Australian or global recession (yet). A recession or stagflation (high inflation low growth) scenario is possible as a worst-case outcome."

"We see the RBA continuing to raise interest rates to address rising inflation risks, amid tight supply. Our high case is one where inflation remains elevated and the RBA are forced to raise interest rates more than expected into 2027. Our low case reflects a weaker economic outcome, particularly if supply constraints and rising costs act as a tax to subdue growth."

"The global economy remains in expansion. Geopolitical risk rises, but commodities and energy led asset class performance amid inflation concerns, while value stocks outpaced growth and fixed income offered increasingly attractive income opportunities."

"The year started off much like the second half of 2025, with most stocks going up and caution being penalized…Then the Iran War and growing systemic private credit risk complicated matters more. We lagged the market to start the quarter but performed better relatively as 'weird' turned to 'bad.' We ended the quarter with a P/V in the mid-50s%, a rare level for us that bodes well for absolute returns moving forward."

"We believe the conflict is nearing an 'inflection point' where geopolitical risk premiums may begin to decompress rapidly as global supply chains demonstrate resilience via alternate energy sources and substitution effects."

"Big U.S. stock indexes are remarkably concentrated in the 10 largest companies. Valuations of large-cap stock indexes are also high compared to historical averages… The implication is that heavily relying on a handful of companies increases the risk to the entire market if poor results come from one or a few firms."

"We still think the most compelling case for small-cap leadership comes from the somewhat rare and promising confluence of relatively low valuations for small-cap versus large-cap… valuations for the Russell 2000 still sat close to their lowest levels versus the Russell 1000 in 25 years. The ongoing research we have seen forecasts better relative earnings growth for small-cap stocks in 2026."

"Currently, our portfolio is attractively valued at an average twelve-month forward P/E ratio of 12.8 times versus the S&P 500 of 19.4 times and the Russell 1000 Value of 16.0 times… We view the volatility as a key source of opportunity. Our approach remains disciplined, prioritizing both valuation and the fundamental sustainability of the businesses and industries in which we invest."

"For several quarters, we've highlighted that market gains have been dominated by momentum and growth. Stocks that were rising kept rising, while laggards fell further behind. This created a historically wide gap in P/E multiples between our portfolio and the S&P 500 and, more importantly, left Oakmark Fund's P/E well below even that of the Russell 1000 Value Index."

"Overall, the Fund trades at an attractive valuation of 14.7 times forward earnings, a significant discount to the S&P 500 at 22.9 times. The portfolio is diversified across a broad range of investment themes, and we believe it is well positioned for a variety of economic environments."

"U.S. equity markets closed the quarter at all-time highs. Performance was powered by reduced interest rate pressure and easing inflation. Equity leadership broadened beyond the Magnificent Seven during the quarter as value stocks outperformed growth and small- and mid-cap stocks outpaced their larger peers."

"Inflation is currently the number one challenge facing Australia’s economy. Just when we had been expecting to see the first signs of slowing inflation (the CPI data showed that headline inflation eased from 3.8% in January to 3.7% in February), we are instead seeing rising fuel prices pushing up costs of transport and other industries that are intensive in fuel usage."

"We continue to see a 15% or so top to bottom fall in share markets along the way this year, but the risk is that it could go deeper the longer the Strait of Hormuz remains effectively closed. However, returns should still be positive for the year as a whole thanks to Fed rate cuts likely later in the year."

"At the Fund level, our P/E multiple has compressed from 24x to 19x, reducing the historical valuation premium to the benchmark from eight turns to just one… The current sell-off has provided an opportunity to add to high-quality franchises at valuations that offer attractive future returns… downside is increasingly underpinned by cash generation and buybacks, while upside is linked to a normalisation of sentiment and continued EPS compounding."

"We were seeing growth picking up, inflation under control, interest rates gradually falling, earnings growth strong – and that is good for equities. The final conclusion is that there is substantial mispricing in this market. There is a lot of opportunity. For the patient investor, the investor who takes the medium to long term outlook, there's going to be some really great opportunities to make money here."

"…Equity markets experienced significant sector rotation… resilient inflation and employment data in both the US and Australia complicated the outlook for interest rates, keeping central banks cautious and market volatility elevated… the large cap Australian equity market ended 3.9% higher but smaller cap local equities fell by 2.6%, while yields moved and the AUD reversed earlier gains."

"Australian economic growth is likely to pick up in 2026, driven by recent Reserve Bank of Australia (RBA) interest rate cuts, solid consumer confidence, and decent income growth. However, low productivity growth will is likely to remain a problem for the Australian economy."

"Mercer’s current portfolio positioning remains mildly positive on equities regarding our allocations between equities and bonds, aiming to stay invested while being selective about risk exposure. Although equity valuations remain elevated in some parts of the market, our view is to not step away from growth entirely."

"Australia's economic growth is expected to continue, albeit at a lower rate than 2025. This growth will be supported by stable inflation, a resilient labour market, rising real wages and income tax cuts… The housing market is expected to remain strong following years of underinvestment and population growth… Materials should remain a dominant sector throughout 2026 as demand for resources continues to support AI infrastructure and the energy transition."

"Our cash and U.S. Treasury holdings now exceed $370 billion. While some of this capital is required to support our insurance operations… it also constitutes our dry powder. There will undoubtedly be incremental opportunities to deploy our owners' capital without compromising Berkshire's resilience. We will always aim for ownership of productive businesses over U.S. Treasuries."

"They discuss expectations for more modest returns and a rotation toward quality and AI execution as markets evolve, highlighting the sectors and companies best positioned to benefit and emphasising investment discipline, fundamentals and long‑term thinking in today’s volatile environment."

"As was the case a year ago, we enter 2026 with limited clarity on the trajectory for the global economy or equity markets…most financial assets are currently priced with little compensation for risk, making it essential for investors to remain focused on individual security analysis and downside protection while pursuing differentiated returns."

"As 2026 begins to take shape, we believe emerging markets (EM) continue to be supported by a combination of firmer fundamentals, improving stability, and valuations that remain comparatively favorable by historical standards. The outlook for the asset class appears more constructive, reflecting both cyclical improvements and longer‑term structural shifts taking shape across EM."

"We're facing an interesting dynamic where the Australian dollar is climbing higher, and there are many quality companies which have underperformed magnificently. These could theoretically represent good buying opportunities, though it's not a done deal – an attractive valuation will not guarantee future returns… Instead of thinking in binary terms… consider broad thinking… a broad-based exposure to quality companies with good earnings"

"The Healthcare de-ratings were particularly severe… CSL is particularly noteworthy as it went from a P/E of almost 50x… down to less than 20x. Some of the de-ratings have provided opportunities for our portfolios. We now own both Woolworths (WOW) and CSL… that are more sensibly priced. However most of the rest still look pretty expensive to us."

"The S&P 500 once again confounded expectations to record a 16% return in 2025… AI-related stocks have driven a full three quarters of the S&P 500's return. The major U.S. equity index has become very concentrated, with the 10 largest companies representing nearly 40% of the index."

"Persistent deficit spending has also imparted some positive nominal drift to the economy, which has trickled down into corporate earnings and margins and by extension forestalled potential recession amid the 2022–23 Fed tightening cycle. Consensus earnings expectations—which likely reflect current fiscal settings—forecast growth to continue through at least calendar 2026, potentially offering support for equity markets."

"This market enthusiasm has led to high, if not excessive, valuations across most asset categories, particularly publicly traded US equities. It's hard to know exactly what is at the root of this exuberance, but history would suggest that it is some combination of benign economic conditions and 'new era' thinking… today it most likely is excitement around the prospects for artificial intelligence."

"The market is far from cheap and will not keep compounding at 20%-plus rates… At year-end 2025, the Magnificent Seven accounted for approximately 34.4% of the S&P 500. For the second year in a row, the market has never been — not at the peak of the dot-com bubble, not during the heyday of the Nifty Fifty, not even in the final days of the Roaring Twenties — this concentrated."

"Momentum delivered exceptional returns in 2025, particularly in developed markets. Valuation spreads have widened, and many high-quality companies have been left behind. History suggests that periods of extreme momentum have often set the stage for strong long-term outcomes for patient, research-driven value investors."

"Investors have a rare opportunity to increase quality and liquidity without giving up equity-like return potential – at a time when equity valuations have reached extremes… Active fixed income strategies delivered their best results in years in 2025 – and the outlook ahead is just as compelling."

"The big banks managed to edge ahead into what we regard as overvalued territory in 2025… big bank profits and dividends have done little over the last decade… so there are few fundamental reasons for their share price surges in recent years other than the ever-growing superannuation reservoir of funds and index weighting."

"If you look only at the headline index numbers this year, 2025 looks fairly straightforward… the All Ordinaries Accumulation index returned just over 10% for the year and the MSCI World Index approximately 20%, putting both modestly above long-term equity returns of 7–8% per annum. On the surface it looks like a decent, if unspectacular, year… opportunities for the patient long‑term investor are excellent."

"While the U.S. stock market is expensive, it doesn't look like a bubble. We do see some bubble symptoms, including high valuations… and investors who think the market is overvalued. However, unlike historical bubbles, we see no wave of IPOs, and existing firms are repurchasing equity instead of issuing it."

"The market's earnings have lagged rising share prices, resulting in multiple expansion. Our sharemarket now trades at about 21 times next year's earnings in aggregate. From these levels, a lot can go wrong. If history is a guide, it likely will."

"We have followed Amazon for many years…The stock has lagged the broader indices for the past five years, and valuation multiples have reverted lower despite cash flow returns on investment rebounding to near-record levels…the Company's EV/EBITDA multiple is trading around 13X for 2026, well below its pre-COVID-19 levels of 25X and the 10-year average of 17X."

"US stocks notched their third year in a row of double-digit gains, but it wasn't the smoothest ride…the S&P 500 was up 17.9% for the year and closed near record levels. The climb came despite tariff uncertainty, interest rate changes, and concerns about the durability of AI's gains…Global stocks rose, with returns in developed international and emerging markets better than those in the US."

"After three very good years for equities, the higher prices, higher valuations, and the irrational belief in the smooth… expansion of AI adoption suggest 2026 could be more volatile than past years. We have been bullish for three years, but in 2026 we adopt a more cautious outlook."

"Globally, risk premiums look slim across both credit and equity market valuations. But that does not imply potential for a market drawdown. In our view, it seems more likely that fixed income and equity assets can post modest total returns while the economic and earnings backdrop remains supportive. Fiscal and monetary policy are far from restrictive, which supports investors' risk appetite."

"While moderating inflation and generally resilient corporate fundamentals offer areas of support, markets continue to experience elevated volatility and index performance remains heavily concentrated in a small number of large-cap stocks. These dynamics heighten the risk of sharper swings in sentiment and underscore the importance of selectivity."

"AI is the dominant mega force right now, helping propel U.S. stocks to all-time highs this year … The Shiller price-to-earnings ratio shows U.S. stock valuations are the most expensive since the dotcom and 1929 bubbles. Market bubbles have arisen in all major historical transformations – and that could happen again."

"For U.S. equities in 2026, we expect a continuation of the recent past, where returns are solid, driven by rising earnings growth. And the risk may skew to the upside … These factors [AI capital investment, faster AI diffusion and a strong wealth effect] can easily push the U.S. economy beyond our forecast of 2.25% growth—toward 3%—and support a double-digit return for U.S. equities."

"Our base case is for patchy, moderate economic growth. More affluent consumers continue to be much better placed than people with lower incomes and financial wealth. We are steering clear of businesses overly exposed to the latter group."

"It is difficult to know when style headwinds will abate, but with the recent pullback and earnings outlook across the portfolio remaining strong, we are seeing better value… The small resources index is up +73% in CY25, its second largest annual gain in over twenty years… Our cash position remains healthy which is allowing us to patiently add to existing and new positions."

"The spectacular market advance over the past 25 years was concentrated in large-cap technology businesses. Smaller and medium-sized growth companies dramatically underperformed… We think many smaller and mid-sized growth stocks now offer awesome opportunity, in part because of AI's ability to affect their revenues and their costs. Also because they are so effing cheap."

"We have benefited greatly from a hard market that began in 2019 but is now beginning to soften… We can see sustaining our consolidated operating income for the next four years at $5 billion, consisting of underwriting profit of $1.5 billion or more, interest and dividends of $2.5 billion and income from associates. These figures are all, of course, before fluctuations in realized and unrealized gains and losses in stocks and bonds!"

"We remain optimistic about the prospects for the stock market in 2026. Our research leads us to believe that economic conditions, which are broadly steady, may experience an acceleration in growth… We recognize that in the months ahead there may be choppy periods in the market, yet we remain directionally positive and believe there are valid reasons for optimism for the stock market."

"Cash in the Fund has come down but remains elevated, with overall valuation levels at historical extremes. We continue to believe the markets are too confident or complacent with the total debt worldwide at dangerous levels… Fiscal policies and proposals have encouraged activity and speculation, but with debt levels at extremes, caution is still warranted."

"In 2024, the US grew to nearly two-thirds of global equity market capitalisation… Valuations in large US technology companies embedded perfection… At the same time, a broad set of global equities in Europe, Japan… and even parts of China traded at low expectations despite improving fundamentals and identifiable catalysts."

"The Australian economy grew in real terms by 0.4% q-o-q in Q3, taking annual GDP growth up to 2.1% y-o-y… one of the better economic growth rates in the OECD… [but] economic growth is threatening the speed limit imposed by low productivity… and that means inflation could stay higher than the RBA would like."

"This year has been a short-term investor's dream: trend following, momentum trading, and lower-quality areas of the market have led the way for much of the year. Seemingly every day, a new announcement of an artificial intelligence (AI) investment causes equity markets to rally, despite historically extended valuations."

"The impact of exuberant tech investment is probably the biggest known unknown for 2026. However, we suspect the likely bust is still some time away. On the upside, it is possible that the macro stimulus drives a stronger economic rebound than currently expected, and a concomitant surge in equity prices (it feels a bit like 1999)."

"Today's markets reflect deep structural imbalances… This era has created an environment where disequilibrium has become the norm. Traditional economic forces that historically corrected imbalances are proving less effective… Large companies now dominate global networks, generating extraordinary profits with minimal tangible assets or workforce."

"We believe the market can continue to rise in the new year… Lower interest rates in the US and higher government spending in Europe, Japan, and China should help lift the global economy out of a mid-cycle slowdown… unlocking value across a wider range of areas, including non-US markets, smaller-cap stocks, and cyclical areas."

"There's no debating that the S&P 500 is selling at the upper end of its historical P/E range… But is it a bubble? In my opinion, no… Today, it's Amazon, Google, Meta, and Microsoft — massive, free-cash-flow-generating companies… That said, a 20% correction wouldn't surprise me."

"The underperformance of the US housing market versus expectations has been a major cause of share price softness for these ASX building material companies… While there are potentially strong share price and earnings upsides for the building material stocks once the US housing market starts its recovery in earnest, patience will likely be needed to see this materialise."

"U.S. stocks marched higher in September, with the S&P 500 posting its fifth consecutive monthly gain. The economy remained resilient, supported by a healthy consumer and increased clarity around trade and economic policy. The Russell 2000 eclipsed its November 2021 record high as the Fed began its rate-cutting cycle. Historically, rate-cutting cycles have provided a bullish backdrop for equities…those periods were followed by an average gain of nearly 15% over the subsequent year."

"The S&P 500 Index, after posting mid-20 percent returns in both 2023 and 2024, has returned to all-time highs with many quality companies trading at extremely expensive valuations. The market remains momentum-driven… We believe the environment is full of risks — geopolitical, regulatory, leverage, supply chain, and tariffs, to name a few."

"Growth in Australia picked up a little in the second quarter…as lower interest rates gradually stimulate activity and the corrosive effects from earlier high inflation fall away. GDP grew by 0.6% in the quarter and by 1.8% over the year. Government consumption, and increasingly household consumption, are driving growth. There has been virtually no growth in private investment."

"As global investors reassess risk-adjusted returns, and as super funds rethink global allocations in the face of rising offshore taxes, we will see a refocus on the Australian sharemarket. We may never have a magnificent seven, but what we do have is a solid, diversified, income-rich market, backed by population growth and natural resources the world continues to need."

"As of June 30, cash and equivalents stood at 8.1% of the Fund, up from 6.3% on March 31 and 1.4% on December 31st. We have made a point of raising our cash position in case our valuation discipline and patience gets rewarded in the weeks and months ahead. Over the life of the Fund, we have routinely held cash in the 5-10% range."

"Yes, valuations are elevated. Pro Medicus sits on a PE just shy of 300. TechnologyOne is around 100. That’s enough to cause nosebleeds for traditional investors looking at near-term earnings multiples."

"The P/E ratio of the S&P 500 at the end of March 2025 was almost two standard deviations above its historic average… U.S. stock market value as a percentage of GDP was at its highest level in history… Such concentration has tended to be a warning sign of a stock market bubble."

"Recognising that US stocks…had become a disproportionate part of the global share market, and the risks this posed, we have had an 'underweight' position to the US share market for some time and instead deployed more of our clients' funds to non-US markets, which we judge as being better valued."

"From a capital markets viewpoint, today is far from a watershed period of pain. Global markets are functioning. Indexes are off their highs, but finding attractive distressed opportunities is hard. Interest rates are reasonable, unemployment rates are low, and liquidity in the financial system is healthy. Yes, inflation and recession are in the discourse, but the economy remains stable."

"The ASX 200 is up almost 6 per cent from its March 23 lows, while the S&P 500 and the Nasdaq are up 11 per cent and 17 per cent, respectively, from their lows on March 30. The remaining question for investors is what happens next."

"We have found some opportunities to address that need in the portfolio in terms of that underweight of Energy particularly on the Energy Services side as we kicked off here in Q2 where we would pick off some names that have lagged this rally in the group here to help mitigate that risk in the portfolio going forward."

"Markets have a strong tendency to swing from one extreme to another… Following strong equities market returns in recent years… the mood has changed from optimism to extreme pessimism and this is being reflected in valuations… The question is whether… this is creating opportunities for the patient investor."

"We think the attention paid to the short-term Fed Funds rate is mostly wasted effort. Long-term rates, on the other hand, are very important since they drive asset allocation decisions for businesses and the valuation of long-term assets. Chronic budget deficits and growing government debt should theoretically lead to higher long-term rates—bad news for stocks—but the 'inevitable' continues to be postponed."

"Developed market shares, as measured by the MSCI World index, fell in Q1. A combination of weakness in US software stocks and risk aversion caused by the conflict in the Middle East weighed on global equities… US shares experienced significant volatility… and the S&P 500 Index fell 4.3%. That marked the weakest quarter for US large caps since 2022."

"Australian inflation has been sticky post COVID, which has encouraged the RBA to increase interest rates for the second time this year. However, one source of inflation (private credit growth) is re‑accelerating. And history shows that monetary policy alone cannot quell private sector demand for credit."

"Overall, the impact of the war on markets can be summarized as: oil up, dollar up, bonds down, stocks down, gold down. Crude oil prices have increased from about $65 per barrel in February to roughly $102 on 31 March…As of the end of March, the S&P 500 is down roughly 4% from its early February peak, and gold is down about 13.5% from its late January peak."

"Not a day goes by without financial pundits discussing the Magnificent Seven… The FPA Crescent Fund and FPA Global Equity ETF have owned a select few of these names—but only episodically when the risk/reward looked most attractive. As two of the three we own have appreciated and begun trading at valuations we believe offer a slimmer margin of safety, we have trimmed our exposure in favor of companies that are, well, out of favor."

"We have revised down our GDP growth forecasts to 1.6% by December, which is basically just in line with population growth. But we are not forecasting an Australian or global recession (yet). A recession or stagflation (high inflation low growth) scenario is possible as a worst-case outcome."

"We see the RBA continuing to raise interest rates to address rising inflation risks, amid tight supply. Our high case is one where inflation remains elevated and the RBA are forced to raise interest rates more than expected into 2027. Our low case reflects a weaker economic outcome, particularly if supply constraints and rising costs act as a tax to subdue growth."

"The global economy remains in expansion. Geopolitical risk rises, but commodities and energy led asset class performance amid inflation concerns, while value stocks outpaced growth and fixed income offered increasingly attractive income opportunities."

"The year started off much like the second half of 2025, with most stocks going up and caution being penalized…Then the Iran War and growing systemic private credit risk complicated matters more. We lagged the market to start the quarter but performed better relatively as 'weird' turned to 'bad.' We ended the quarter with a P/V in the mid-50s%, a rare level for us that bodes well for absolute returns moving forward."

"We believe the conflict is nearing an 'inflection point' where geopolitical risk premiums may begin to decompress rapidly as global supply chains demonstrate resilience via alternate energy sources and substitution effects."

"Big U.S. stock indexes are remarkably concentrated in the 10 largest companies. Valuations of large-cap stock indexes are also high compared to historical averages… The implication is that heavily relying on a handful of companies increases the risk to the entire market if poor results come from one or a few firms."

"We still think the most compelling case for small-cap leadership comes from the somewhat rare and promising confluence of relatively low valuations for small-cap versus large-cap… valuations for the Russell 2000 still sat close to their lowest levels versus the Russell 1000 in 25 years. The ongoing research we have seen forecasts better relative earnings growth for small-cap stocks in 2026."

"Currently, our portfolio is attractively valued at an average twelve-month forward P/E ratio of 12.8 times versus the S&P 500 of 19.4 times and the Russell 1000 Value of 16.0 times… We view the volatility as a key source of opportunity. Our approach remains disciplined, prioritizing both valuation and the fundamental sustainability of the businesses and industries in which we invest."

"For several quarters, we've highlighted that market gains have been dominated by momentum and growth. Stocks that were rising kept rising, while laggards fell further behind. This created a historically wide gap in P/E multiples between our portfolio and the S&P 500 and, more importantly, left Oakmark Fund's P/E well below even that of the Russell 1000 Value Index."

"Overall, the Fund trades at an attractive valuation of 14.7 times forward earnings, a significant discount to the S&P 500 at 22.9 times. The portfolio is diversified across a broad range of investment themes, and we believe it is well positioned for a variety of economic environments."

"U.S. equity markets closed the quarter at all-time highs. Performance was powered by reduced interest rate pressure and easing inflation. Equity leadership broadened beyond the Magnificent Seven during the quarter as value stocks outperformed growth and small- and mid-cap stocks outpaced their larger peers."

"Inflation is currently the number one challenge facing Australia’s economy. Just when we had been expecting to see the first signs of slowing inflation (the CPI data showed that headline inflation eased from 3.8% in January to 3.7% in February), we are instead seeing rising fuel prices pushing up costs of transport and other industries that are intensive in fuel usage."

"We continue to see a 15% or so top to bottom fall in share markets along the way this year, but the risk is that it could go deeper the longer the Strait of Hormuz remains effectively closed. However, returns should still be positive for the year as a whole thanks to Fed rate cuts likely later in the year."

"At the Fund level, our P/E multiple has compressed from 24x to 19x, reducing the historical valuation premium to the benchmark from eight turns to just one… The current sell-off has provided an opportunity to add to high-quality franchises at valuations that offer attractive future returns… downside is increasingly underpinned by cash generation and buybacks, while upside is linked to a normalisation of sentiment and continued EPS compounding."

"We were seeing growth picking up, inflation under control, interest rates gradually falling, earnings growth strong – and that is good for equities. The final conclusion is that there is substantial mispricing in this market. There is a lot of opportunity. For the patient investor, the investor who takes the medium to long term outlook, there's going to be some really great opportunities to make money here."

"…Equity markets experienced significant sector rotation… resilient inflation and employment data in both the US and Australia complicated the outlook for interest rates, keeping central banks cautious and market volatility elevated… the large cap Australian equity market ended 3.9% higher but smaller cap local equities fell by 2.6%, while yields moved and the AUD reversed earlier gains."

"Australian economic growth is likely to pick up in 2026, driven by recent Reserve Bank of Australia (RBA) interest rate cuts, solid consumer confidence, and decent income growth. However, low productivity growth will is likely to remain a problem for the Australian economy."

"Mercer’s current portfolio positioning remains mildly positive on equities regarding our allocations between equities and bonds, aiming to stay invested while being selective about risk exposure. Although equity valuations remain elevated in some parts of the market, our view is to not step away from growth entirely."

"Australia's economic growth is expected to continue, albeit at a lower rate than 2025. This growth will be supported by stable inflation, a resilient labour market, rising real wages and income tax cuts… The housing market is expected to remain strong following years of underinvestment and population growth… Materials should remain a dominant sector throughout 2026 as demand for resources continues to support AI infrastructure and the energy transition."

"Our cash and U.S. Treasury holdings now exceed $370 billion. While some of this capital is required to support our insurance operations… it also constitutes our dry powder. There will undoubtedly be incremental opportunities to deploy our owners' capital without compromising Berkshire's resilience. We will always aim for ownership of productive businesses over U.S. Treasuries."

"They discuss expectations for more modest returns and a rotation toward quality and AI execution as markets evolve, highlighting the sectors and companies best positioned to benefit and emphasising investment discipline, fundamentals and long‑term thinking in today’s volatile environment."

"As was the case a year ago, we enter 2026 with limited clarity on the trajectory for the global economy or equity markets…most financial assets are currently priced with little compensation for risk, making it essential for investors to remain focused on individual security analysis and downside protection while pursuing differentiated returns."

"As 2026 begins to take shape, we believe emerging markets (EM) continue to be supported by a combination of firmer fundamentals, improving stability, and valuations that remain comparatively favorable by historical standards. The outlook for the asset class appears more constructive, reflecting both cyclical improvements and longer‑term structural shifts taking shape across EM."

"We're facing an interesting dynamic where the Australian dollar is climbing higher, and there are many quality companies which have underperformed magnificently. These could theoretically represent good buying opportunities, though it's not a done deal – an attractive valuation will not guarantee future returns… Instead of thinking in binary terms… consider broad thinking… a broad-based exposure to quality companies with good earnings"

"The Healthcare de-ratings were particularly severe… CSL is particularly noteworthy as it went from a P/E of almost 50x… down to less than 20x. Some of the de-ratings have provided opportunities for our portfolios. We now own both Woolworths (WOW) and CSL… that are more sensibly priced. However most of the rest still look pretty expensive to us."

"The S&P 500 once again confounded expectations to record a 16% return in 2025… AI-related stocks have driven a full three quarters of the S&P 500's return. The major U.S. equity index has become very concentrated, with the 10 largest companies representing nearly 40% of the index."

"Persistent deficit spending has also imparted some positive nominal drift to the economy, which has trickled down into corporate earnings and margins and by extension forestalled potential recession amid the 2022–23 Fed tightening cycle. Consensus earnings expectations—which likely reflect current fiscal settings—forecast growth to continue through at least calendar 2026, potentially offering support for equity markets."

"This market enthusiasm has led to high, if not excessive, valuations across most asset categories, particularly publicly traded US equities. It's hard to know exactly what is at the root of this exuberance, but history would suggest that it is some combination of benign economic conditions and 'new era' thinking… today it most likely is excitement around the prospects for artificial intelligence."

"The market is far from cheap and will not keep compounding at 20%-plus rates… At year-end 2025, the Magnificent Seven accounted for approximately 34.4% of the S&P 500. For the second year in a row, the market has never been — not at the peak of the dot-com bubble, not during the heyday of the Nifty Fifty, not even in the final days of the Roaring Twenties — this concentrated."

"Momentum delivered exceptional returns in 2025, particularly in developed markets. Valuation spreads have widened, and many high-quality companies have been left behind. History suggests that periods of extreme momentum have often set the stage for strong long-term outcomes for patient, research-driven value investors."

"Investors have a rare opportunity to increase quality and liquidity without giving up equity-like return potential – at a time when equity valuations have reached extremes… Active fixed income strategies delivered their best results in years in 2025 – and the outlook ahead is just as compelling."

"The big banks managed to edge ahead into what we regard as overvalued territory in 2025… big bank profits and dividends have done little over the last decade… so there are few fundamental reasons for their share price surges in recent years other than the ever-growing superannuation reservoir of funds and index weighting."

"If you look only at the headline index numbers this year, 2025 looks fairly straightforward… the All Ordinaries Accumulation index returned just over 10% for the year and the MSCI World Index approximately 20%, putting both modestly above long-term equity returns of 7–8% per annum. On the surface it looks like a decent, if unspectacular, year… opportunities for the patient long‑term investor are excellent."

"While the U.S. stock market is expensive, it doesn't look like a bubble. We do see some bubble symptoms, including high valuations… and investors who think the market is overvalued. However, unlike historical bubbles, we see no wave of IPOs, and existing firms are repurchasing equity instead of issuing it."

"The market's earnings have lagged rising share prices, resulting in multiple expansion. Our sharemarket now trades at about 21 times next year's earnings in aggregate. From these levels, a lot can go wrong. If history is a guide, it likely will."

"We have followed Amazon for many years…The stock has lagged the broader indices for the past five years, and valuation multiples have reverted lower despite cash flow returns on investment rebounding to near-record levels…the Company's EV/EBITDA multiple is trading around 13X for 2026, well below its pre-COVID-19 levels of 25X and the 10-year average of 17X."

"US stocks notched their third year in a row of double-digit gains, but it wasn't the smoothest ride…the S&P 500 was up 17.9% for the year and closed near record levels. The climb came despite tariff uncertainty, interest rate changes, and concerns about the durability of AI's gains…Global stocks rose, with returns in developed international and emerging markets better than those in the US."

"After three very good years for equities, the higher prices, higher valuations, and the irrational belief in the smooth… expansion of AI adoption suggest 2026 could be more volatile than past years. We have been bullish for three years, but in 2026 we adopt a more cautious outlook."

"Globally, risk premiums look slim across both credit and equity market valuations. But that does not imply potential for a market drawdown. In our view, it seems more likely that fixed income and equity assets can post modest total returns while the economic and earnings backdrop remains supportive. Fiscal and monetary policy are far from restrictive, which supports investors' risk appetite."

"While moderating inflation and generally resilient corporate fundamentals offer areas of support, markets continue to experience elevated volatility and index performance remains heavily concentrated in a small number of large-cap stocks. These dynamics heighten the risk of sharper swings in sentiment and underscore the importance of selectivity."

"AI is the dominant mega force right now, helping propel U.S. stocks to all-time highs this year … The Shiller price-to-earnings ratio shows U.S. stock valuations are the most expensive since the dotcom and 1929 bubbles. Market bubbles have arisen in all major historical transformations – and that could happen again."

"For U.S. equities in 2026, we expect a continuation of the recent past, where returns are solid, driven by rising earnings growth. And the risk may skew to the upside … These factors [AI capital investment, faster AI diffusion and a strong wealth effect] can easily push the U.S. economy beyond our forecast of 2.25% growth—toward 3%—and support a double-digit return for U.S. equities."

"Our base case is for patchy, moderate economic growth. More affluent consumers continue to be much better placed than people with lower incomes and financial wealth. We are steering clear of businesses overly exposed to the latter group."

"It is difficult to know when style headwinds will abate, but with the recent pullback and earnings outlook across the portfolio remaining strong, we are seeing better value… The small resources index is up +73% in CY25, its second largest annual gain in over twenty years… Our cash position remains healthy which is allowing us to patiently add to existing and new positions."

"The spectacular market advance over the past 25 years was concentrated in large-cap technology businesses. Smaller and medium-sized growth companies dramatically underperformed… We think many smaller and mid-sized growth stocks now offer awesome opportunity, in part because of AI's ability to affect their revenues and their costs. Also because they are so effing cheap."

"We have benefited greatly from a hard market that began in 2019 but is now beginning to soften… We can see sustaining our consolidated operating income for the next four years at $5 billion, consisting of underwriting profit of $1.5 billion or more, interest and dividends of $2.5 billion and income from associates. These figures are all, of course, before fluctuations in realized and unrealized gains and losses in stocks and bonds!"

"We remain optimistic about the prospects for the stock market in 2026. Our research leads us to believe that economic conditions, which are broadly steady, may experience an acceleration in growth… We recognize that in the months ahead there may be choppy periods in the market, yet we remain directionally positive and believe there are valid reasons for optimism for the stock market."

"Cash in the Fund has come down but remains elevated, with overall valuation levels at historical extremes. We continue to believe the markets are too confident or complacent with the total debt worldwide at dangerous levels… Fiscal policies and proposals have encouraged activity and speculation, but with debt levels at extremes, caution is still warranted."

"In 2024, the US grew to nearly two-thirds of global equity market capitalisation… Valuations in large US technology companies embedded perfection… At the same time, a broad set of global equities in Europe, Japan… and even parts of China traded at low expectations despite improving fundamentals and identifiable catalysts."

"The Australian economy grew in real terms by 0.4% q-o-q in Q3, taking annual GDP growth up to 2.1% y-o-y… one of the better economic growth rates in the OECD… [but] economic growth is threatening the speed limit imposed by low productivity… and that means inflation could stay higher than the RBA would like."

"This year has been a short-term investor's dream: trend following, momentum trading, and lower-quality areas of the market have led the way for much of the year. Seemingly every day, a new announcement of an artificial intelligence (AI) investment causes equity markets to rally, despite historically extended valuations."

"The impact of exuberant tech investment is probably the biggest known unknown for 2026. However, we suspect the likely bust is still some time away. On the upside, it is possible that the macro stimulus drives a stronger economic rebound than currently expected, and a concomitant surge in equity prices (it feels a bit like 1999)."

"Today's markets reflect deep structural imbalances… This era has created an environment where disequilibrium has become the norm. Traditional economic forces that historically corrected imbalances are proving less effective… Large companies now dominate global networks, generating extraordinary profits with minimal tangible assets or workforce."

"We believe the market can continue to rise in the new year… Lower interest rates in the US and higher government spending in Europe, Japan, and China should help lift the global economy out of a mid-cycle slowdown… unlocking value across a wider range of areas, including non-US markets, smaller-cap stocks, and cyclical areas."

"There's no debating that the S&P 500 is selling at the upper end of its historical P/E range… But is it a bubble? In my opinion, no… Today, it's Amazon, Google, Meta, and Microsoft — massive, free-cash-flow-generating companies… That said, a 20% correction wouldn't surprise me."

"The underperformance of the US housing market versus expectations has been a major cause of share price softness for these ASX building material companies… While there are potentially strong share price and earnings upsides for the building material stocks once the US housing market starts its recovery in earnest, patience will likely be needed to see this materialise."

"U.S. stocks marched higher in September, with the S&P 500 posting its fifth consecutive monthly gain. The economy remained resilient, supported by a healthy consumer and increased clarity around trade and economic policy. The Russell 2000 eclipsed its November 2021 record high as the Fed began its rate-cutting cycle. Historically, rate-cutting cycles have provided a bullish backdrop for equities…those periods were followed by an average gain of nearly 15% over the subsequent year."

"The S&P 500 Index, after posting mid-20 percent returns in both 2023 and 2024, has returned to all-time highs with many quality companies trading at extremely expensive valuations. The market remains momentum-driven… We believe the environment is full of risks — geopolitical, regulatory, leverage, supply chain, and tariffs, to name a few."

"Growth in Australia picked up a little in the second quarter…as lower interest rates gradually stimulate activity and the corrosive effects from earlier high inflation fall away. GDP grew by 0.6% in the quarter and by 1.8% over the year. Government consumption, and increasingly household consumption, are driving growth. There has been virtually no growth in private investment."

"As global investors reassess risk-adjusted returns, and as super funds rethink global allocations in the face of rising offshore taxes, we will see a refocus on the Australian sharemarket. We may never have a magnificent seven, but what we do have is a solid, diversified, income-rich market, backed by population growth and natural resources the world continues to need."

"As of June 30, cash and equivalents stood at 8.1% of the Fund, up from 6.3% on March 31 and 1.4% on December 31st. We have made a point of raising our cash position in case our valuation discipline and patience gets rewarded in the weeks and months ahead. Over the life of the Fund, we have routinely held cash in the 5-10% range."

"Yes, valuations are elevated. Pro Medicus sits on a PE just shy of 300. TechnologyOne is around 100. That’s enough to cause nosebleeds for traditional investors looking at near-term earnings multiples."

"The P/E ratio of the S&P 500 at the end of March 2025 was almost two standard deviations above its historic average… U.S. stock market value as a percentage of GDP was at its highest level in history… Such concentration has tended to be a warning sign of a stock market bubble."

"Recognising that US stocks…had become a disproportionate part of the global share market, and the risks this posed, we have had an 'underweight' position to the US share market for some time and instead deployed more of our clients' funds to non-US markets, which we judge as being better valued."

"From a capital markets viewpoint, today is far from a watershed period of pain. Global markets are functioning. Indexes are off their highs, but finding attractive distressed opportunities is hard. Interest rates are reasonable, unemployment rates are low, and liquidity in the financial system is healthy. Yes, inflation and recession are in the discourse, but the economy remains stable."

"The global economy always faces risks, but for the moment, the US is doing well, and prospects of another Trump presidency do not seem to be worrying the market at all. Investors appear confident that economic policies will remain supportive of growth regardless of political changes. This stability is providing a solid foundation for continued market performance."

"The Federal Reserve's (Fed's) aggressive post-pandemic rate-hiking and higher-for-longer rate strategy has helped underpin the U.S. dollar. This has significant consequences for global economies, currencies, and trade flows. Emerging markets in particular may face challenges as the strong dollar makes their exports more expensive and increases the cost of dollar-denominated debt."

"The ECB's cautious approach to monetary policy normalization reflects the ongoing uncertainties in the eurozone economy. While inflation has moderated, structural challenges in productivity and demographic trends continue to weigh on long-term growth prospects. The bank's focus on data-dependent decision making provides flexibility but also introduces uncertainty for market participants."

"Asia's economic trajectory remains robust despite global headwinds. China's transition to a consumption-driven growth model, combined with India's rapid digital transformation and Southeast Asia's manufacturing renaissance, positions the region for continued outperformance. However, geopolitical tensions and supply chain vulnerabilities remain key risk factors that require careful monitoring."

"Emerging markets are at a critical juncture. While attractive valuations and improving fundamentals present opportunities, external financing conditions and commodity price volatility create challenges. Countries with strong policy frameworks and diversified economies are better positioned to navigate these turbulent waters and capitalize on the next phase of global growth."