A quarter of recovery
After the sharp sell-off in March, the April to June quarter delivered a strong rebound for investors. The announcement of an Iran-US ceasefire in April removed the most acute geopolitical risk that had rattled markets through the first quarter, and optimism around artificial intelligence continued to lift US and Asian technology shares toward historic highs.
Global shares (hedged) returned an exceptional 14.9% for the quarter. Australian shares recovered to post a 4.1% quarterly gain, though the domestic picture remained mixed: household budgets are still stretched, the Reserve Bank of Australia (RBA) has lifted rates three times this year, and the inflation challenge has not gone away.
The Iran-US ceasefire changed everything
The most significant development of the quarter was the ceasefire announced in April between Iran and the United States. The outbreak of conflict in late February had been the catalyst for the March sell-off: energy prices surged, inflation fears returned, and investor confidence deteriorated quickly.
April’s ceasefire announcement reversed most of that damage. Oil and natural gas prices retreated, bond markets stabilised, and equities rallied across most regions. Energy shares, which had been among the strongest performers in Q1, gave back significant ground: the Australian Energy sector fell 16.7% for the quarter as oil prices normalised. The reversal from a geopolitical risk premium unwinding can happen quickly, and this quarter illustrated that dynamic clearly.
The peace agreement is not yet formalised. A Memorandum of Understanding remains in place, but trust between the parties is fragile. Markets are pricing in a resolution, but any re-escalation would be a sharp shock to that assumption.
AI lifts global technology markets
Artificial intelligence remained the dominant narrative in global equities. The largest US technology companies, including Alphabet, Amazon, Microsoft and Nvidia, continued to announce substantial capital investment in AI infrastructure, which both drives their own earnings expectations and supports broader US economic activity.
US shares briefly made new historic highs in early June. Corporate profit growth for US companies is expected to exceed 20% for the June quarter according to FactSet estimates, an exceptionally strong result by any historical standard.
Asian markets also reflected AI optimism, albeit unevenly. Korean shares surged 89.7% in local currency terms for the quarter on expectations of robust semiconductor demand, and Taiwan gained 48.3%. Both markets are central to the global semiconductor supply chain that underpins AI hardware. Chinese shares, however, disappointed, falling 6.9% as weak consumer spending and ongoing pressure in the property sector weighed on sentiment.
Australian shares: a mixed recovery
Australian shares returned 4.1% for the quarter, but the composition of that return varied significantly across sectors.
The Information Technology sector led with a 17.4% quarterly gain, benefiting from the same AI sentiment lifting global tech. Australian property securities recovered strongly with a 13.5% return after being badly hit earlier in the year. The Consumer Staples sector also gained on improved spending data and lower petrol prices.
Against that, Energy fell 16.7% as oil prices retreated with the ceasefire. Health Care declined 6.1%, dragged lower by weak profit guidance from Cochlear and CSL, though CSL partially recovered in June, contributing to Health Care’s 12.5% monthly rebound in the final month.
The Federal Budget’s proposals for changes to capital gains tax and negative gearing also created uncertainty in the residential property market. With the fuel excise tax cut trimmed from 32 cents to 16 cents per litre, cost-of-living pressure remains the dominant concern for many Australian households.
Interest rates: the RBA’s difficult position
Australia’s central bank has been one of the more active central banks globally this year, raising the cash rate three times, in February, March and May. Headline consumer inflation reached 4.0% for the year to May. The RBA held rates steady at its June meeting but warned that it remains prepared to raise the cash rate further if required.
The dilemma facing the RBA and central banks globally is significant. Persistent inflation argues for higher rates. But weaker economic activity, softer jobs growth and stretched household balance sheets argue for restraint. The European Central Bank and Bank of Japan both raised rates in June, and the question of whether the US Federal Reserve follows suit is one of the more consequential uncertainties heading into the second half of 2026.
For clients with home loans or investment debt, this environment reinforces the importance of reviewing your debt structure and stress-testing repayments against further potential rate increases.
How the financial year shaped up
Across the full financial year to 30 June 2026, the headline results are strong, particularly for global equities, though the path was anything but smooth.
The first half of FY2025-26 was largely positive, with AI-driven optimism and expectations of global rate cuts supporting equity markets. The second half opened with the Iran War triggering a sharp correction in March, followed by an equally sharp recovery through the June quarter. Investors who remained invested through the volatility captured the recovery; those who moved to cash or defensive assets in March largely did not.
Global shares (hedged) returned 25.1% for the full year. Emerging markets, buoyed by Asia’s semiconductor and AI-linked rally, returned an exceptional 35.7%. Australian shares delivered a more modest 6.2%, reflecting domestic headwinds including higher interest rates, a challenging consumer environment, and the policy uncertainty generated by the Federal Budget.
Bonds had a difficult year. Australian bonds returned just 1.5%. That’s positive, but well below longer-term averages, as the rate-hiking cycle compressed returns. Cash returned 3.9%, reflecting the higher cash rate environment.
Asset class summary: 30 June 2026
| Asset class | 3 months % | 1 year % | 3 years % pa |
|---|---|---|---|
| Australian shares | 4.1% | 6.2% | 10.6% |
| Global shares (hedged) | 14.9% | 25.1% | 19.2% |
| Global shares (unhedged) | 13.6% | 17.0% | 18.1% |
| Emerging markets (unhedged) | 22.6% | 35.7% | 21.4% |
| Global property securities (hedged) | 8.8% | 14.3% | 9.0% |
| Global listed infrastructure (hedged) | 2.6% | 16.6% | 11.8% |
| Australian bonds | 2.6% | 1.5% | 4.0% |
| Global bonds (hedged) | 1.5% | 2.9% | 3.7% |
| Cash | 1.1% | 3.9% | 4.2% |
What this means for your portfolio
The June quarter reminds investors that recoveries can be as sharp as drawdowns, and that the cost of being out of the market during a rebound is real. The 14.9% return on global shares (hedged) in a single quarter isn’t typical, but it’s the kind of result that diversified, long-term investors captured by staying invested.
Looking ahead, the risks are genuine. The Iran ceasefire is fragile. US inflation has re-accelerated to 4.2%, creating pressure for further Federal Reserve action. Australia faces ongoing cost-of-living headwinds and a central bank that has flagged it may not be finished raising rates.
For investors approaching or in retirement, this environment reinforces the importance of having a clear income strategy that can absorb volatility without forcing asset sales at the wrong time. For those still accumulating, particularly through superannuation, the year is a useful reminder that staying invested through volatility is typically more effective than attempting to time the market.
If you’d like to discuss how current conditions affect your portfolio or financial plan, speak with one of our advisers.