Global Markets Navigate Volatility Amid Geopolitical Tensions and AI Shifts

Global financial markets, including Australia's, experienced significant volatility over a recent period. This was largely influenced by geopolitical tensions in the Middle East, fluctuating oil prices, and transformative shifts within the technology sector driven by Artificial Intelligence (AI) developments.

Market sentiment oscillated between hopes for de-escalation and concerns over escalating conflict, while economic indicators in major economies provided mixed signals regarding inflation and interest rates. Australian superannuation funds also registered declines, prompting investment experts to re-emphasize long-term perspectives.

Australian Markets Face Volatility

S&P/ASX 200 Index Fluctuations

The Australian sharemarket, represented by the S&P/ASX 200 index, recorded varied performance. On specific days, the index closed marginally higher, for instance, by 0.16 percent to 8379.4 points, or by 0.2 percent to 8727.8 points on the first trading day of 2026.

Other periods saw stronger gains, with the S&P/ASX 200 surging 1.85 percent to 8534.3 points on one occasion, recovering an estimated $56 billion following earlier losses. Conversely, the market also experienced declines, falling 0.6 percent in early trading on one Friday, 0.4 percent on a Monday, and 1.6 percent on another morning, following periods of modest gains. The broader All Ordinaries index mirrored these trends.

Sectoral Performance Snapshot

• Energy: The energy sector showed strength during periods of rising oil prices, with companies like Woodside Energy and Santos recording gains. It experienced sluggish performance when oil prices fell.
• Mining: Mining stocks presented a mixed picture. Some periods saw gains, particularly after reported losses over three weeks, while others showed declines. Rio Tinto notably secured $2 billion in government subsidies to maintain its Boyne aluminium smelter operations.
• Financials: The heavyweight financials sector generally saw gains or mixed results, with three of the four major banks often tracking increases.
• Technology: The Information Technology sector experienced significant volatility and overall declines. The S&P/ASX 200 Information Technology Index fell 13.07 percent over five trading days and 20.5 percent year-to-date at one point, with a six-month decline exceeding 40 percent. This was influenced by global tech trends and local factors such as an interest rate hike and governance issues. Some tech shares, however, rebounded following positive company updates.
• Gold Miners: Gold miners' shares fluctuated, rising when gold prices increased and retreating when the precious metal's price weakened.
• Airlines: Companies like Qantas and Virgin Australia benefited from hopes for an end to flight disruptions in the Middle East.

Key Australian Company Developments

• Nine Entertainment: Shares increased after an agreement to sell talkback radio stations for $56 million and purchasing outdoor media firm QMS for $850 million.
• Telstra: Reported an 8.1 percent rise in half-year profit to $1.2 billion, attributed to cost-cutting, and indicated potential mobile bill increases due to a government spectrum charge.
• Wesfarmers: Experienced a share price decline despite increased sales and profit, as results did not meet expectations.
• Medibank: Shares fell after an 11 percent decrease in half-year net profit.
• Zip: Shares decreased after first-half results showed a narrower revenue margin and an increase in net bad debts.
• Pepper Money: Surged after a takeover bid from Challenger.
• WiseTech Global: Shares leapt after reporting a revenue surge and announcing an 'AI transformation' involving job reductions.
• TechnologyOne: Shares rose after upgrading its FY26 guidance.
• Life360: Shares experienced a significant jump on January 23 following a positive trading update, but also recorded declines year-to-date.
• Qantas: Announced a $105 million settlement for a class action related to COVID-era flight cancellations.

Global Markets Mirror Uncertainty

Wall Street and International Trends

Wall Street experienced periods of both gains and significant declines. The S&P 500, Dow Jones, and Nasdaq composite indices showed considerable volatility. Some days registered increases (e.g., S&P 500 up 0.5 percent, Dow up 0.7 percent, Nasdaq up 0.8 percent), while others were marked by substantial falls (e.g., S&P 500 down 1.7 percent, Nasdaq down 2.4 percent, entering a "correction" phase).

On one Friday, the S&P 500 climbed 2 percent, and the Dow Jones surpassed the 50,000 level. International markets in London, Paris, Shanghai, and Tokyo also saw gains on some occasions, while European sharemarkets retreated at other times.

Global Company Highlights

• Arm Holdings: Shares increased after announcing new chip offerings for data centers and AI technology.
• Robinhood Markets: Rallied following authorization for a share repurchase program and later saw further gains.
• SpaceX: Was reportedly considering an initial public offering (IPO) with a target valuation of approximately $75 billion.
• Terns Pharmaceuticals: Shares rose following Merck's announcement of an acquisition deal.
• On Holding: Stock slumped after its CEO's resignation.
• Pop Mart International Group: Shares tumbled in Hong Kong after reporting results that did not meet analyst expectations.
• Microsoft: Its market capitalization decreased substantially on one day, with its stock plunging, despite reporting stronger-than-expected profit and revenue, amidst skepticism regarding AI investments.
• Apple: Reported a new quarterly record for iPhone sales during the holiday season.
• Tesla: Stock declined after reporting lower profit compared to the previous year.
• Meta Platforms: Rallied after exceeding profit expectations despite substantial AI investments, and later announced a partnership with Nvidia for AI data centers.
• IBM: Climbed after surpassing analysts' expectations for profit and revenue.

Middle East Tensions Drive Market Sentiment and Commodity Prices

Conflict Developments and Escalation Fears

The Middle East conflict was a primary driver of market sentiment and commodity prices. Reports of US-Iranian officials engaging in talks and a US plan to pause the war circulated, initially fostering hopes for de-escalation. However, Iran's foreign minister denied plans for peace talks, and the conflict continued, with Iran conducting additional attacks on Israel and Gulf Arab countries, including an incident at Kuwait International Airport.

Military actions and deployments were reported, including Saudi Arabia initiating steps to provide the US military access to an airbase, and the US deploying additional troops to the region. The US also reportedly attacked Iran's main export hub, Kharg Island. Iran's new supreme leader stated the country would continue attacks on Gulf Arab neighbors and leverage the closure of the Strait of Hormuz. Iran later conducted an attack on a major LNG site in Qatar.

Strait of Hormuz: A Critical Bottleneck

The Strait of Hormuz, a critical waterway through which a significant portion of the world's oil passes, became a point of contention.

Oil tankers experienced delays, Iran reportedly strengthened its control, and its actions led to halts in cargo traffic and production cuts by regional oil producers. The International Energy Agency (IEA) announced its members would release a record 400 million barrels of oil from emergency stockpiles in response to supply concerns.

Economic Signals and Commodity Swings

Oil Prices: A Barometer of Geopolitical Risk

Oil prices exhibited significant volatility. Brent crude, the international standard, fluctuated from below $US98 to over $US107 per barrel, and at one point climbed 9.2 percent to settle at $US100.46 per barrel. This surge was driven by concerns that the Iran conflict could disrupt oil production, potentially leading to increased global inflation. Expectations of de-escalation, conversely, could facilitate an unhindered flow of oil and natural gas.

Australian Economic Data

• Inflation: Australia's Consumer Price Index (CPI) rose 3.7 percent year-on-year in February, a 0.1 percent decrease from the previous month and below market expectations. These figures did not account for energy price increases after the conflict began.
• Unemployment: The unemployment rate remained stable at 4.1 percent in January but unexpectedly increased to 4.3 percent in February.
• RBA: The Reserve Bank of Australia was anticipated to announce an interest rate decision, with money markets pricing in a likely rate increase.

US Economic Data

• Inflation: US inflation increased, with prices rising 2.8 percent year-on-year in January. Core prices rose 3.1 percent, and wholesale inflation accelerated to 3.4 percent at one point. Federal Reserve Chair Jerome Powell stated higher energy prices would contribute to overall inflation.
• Unemployment: US unemployment benefit filings showed slight increases at times, though numbers remained historically low.
• Consumer Sentiment/Spending: Consumer spending increased in January, but a consumer sentiment gauge showed a slight decline attributed to petrol price increases.
• Federal Reserve: Expectations for Federal Reserve interest rate cuts diminished amid concerns that lower rates could worsen inflation. The Fed maintained its main interest rate, with officials projecting one more rate cut by the end of 2026.

Bond Market and Safe Havens

Treasury yields experienced fluctuations, easing on some occasions with the 10-year Treasury yield falling, but also increasing significantly at other times, contributing to higher mortgage rates and other borrowing costs. Gold, often seen as a safe haven, saw its price fluctuate, rising on some days to settle at over $US4,500 per ounce, and declining on others as Treasury bonds offered higher interest. Bitcoin also experienced volatility, briefly dropping before recovering above $US70,000.

AI Reshapes the Technology Landscape

The global technology sector faced concerns over valuations and the potential impact of Artificial Intelligence (AI) disruption. A small group of large US-listed companies, including the "Magnificent Seven," were noted for driving US market gains, with significant capital investment into AI projected to reach approximately $520 billion in 2026.

Concerns emerged that AI could compete with or even replace existing tech companies, particularly Software-as-a-Service (SaaS) firms, a phenomenon dubbed 'SaaSpocalypse'. The release of a legal plug-in for Anthropic's AI assistant, Claude, contributed to these fears, leading to a significant decline in Thomson Reuters shares.

Fund managers, including Blackwattle Investment Partners, adjusted their portfolios in response to evolving views on AI disruption. They redirected capital to technology businesses with stronger barriers and focused on companies with earnings upside risk. This issue was particularly relevant for the Australian tech sector, as four of its six largest companies are SaaS providers: WiseTech Global Ltd, Xero Ltd, TechnologyOne Ltd, and Life360 Inc.

Australian Super Funds Emphasize Long-Term View

Australian superannuation funds experienced declines in March following gains in February, with the average median growth fund retracing an estimated 3.8 percent in March. This occurred in the wake of military actions involving the US, Israel, and Iran in late February. Despite recent falls, funds maintained a positive position for the current financial year.

Experts emphasized the long-term nature of superannuation investments.

They advised against making immediate decisions during share market volatility, which could crystallize losses and risk missing subsequent market rebounds.

Super funds have delivered strong results in previous financial years, with average annual returns of 8 percent since the introduction of compulsory super in July 1992.

Australian Dollar Stability

The Australian dollar traded in a range against the US dollar, moving from approximately US69.66¢ to US70.56¢ during the reported periods.