OK….. What have I missed?????

You wouldn’t know it from the strength of the index,” Halloway said.
While share prices are proving more than resilient – the S&P/ASX 200 Index added 118.2 points on Friday, its best session since April 10 – underlying profits tell a different story.
The biggest drag on earnings was coming from the miners, according to Morningstar. After a strong run after the COVID-19 pandemic – a period of soaring commodity prices – conditions have softened, particularly for big iron ore players BHP, Rio Tinto and Fortescue. Halloway estimated the three companies’ earnings would drop a combined 13 per cent.

Iron ore futures in Singapore dropped 14 per cent from $US110 to $US94 a tonne over the last financial year. Since December 31, iron ore has declined around 2 per cent from $US104 a tonne to $US101 a tonne.
But two Perth fund managers said the gloomy earnings view was overly backward-looking, and didn’t account for shifting commodity dynamics.
“It’s probably more rear-focused than forward-looking,” said Katana Asset Management portfolio manager Romano Sala Tenna. “I don’t think any analyst has correctly called the iron ore price in the last decade.”
Sala Tenna pointed to iron ore’s current level of around $US99 a tonne, well above what most brokers had forecast. “We’re at or close to a bottom in the commodity price cycle,” he said, adding earnings would be “revised upwards”.
“In past cycles, the miners have been very poor allocators of capital. Today, they’ve been good allocators,” Sala Tenna said, arguing that stronger discipline and robust yields supported a valuation premium.
Similarly, Endeavour Asset Management chief investment officer Hayden Beamish said current earnings forecasts were based on historical or spot commodity prices, and that these didn’t reflect recent momentum.

“We’ve had the rotation from industrials and financials into commodities only just beginning – it started in July,” Beamish said. “All roads lead to stimulus, China, the US fiscal spend, tariffs, and rate cuts coming through. You could just see this continue in resources in Australia.”
Beamish said Endeavour has been adding exposure to miners over the past few months, including stocks like South32, Firefly Metals and BHP, following a long period of underperformance relative to the banks.
While financials, the largest sector in the ASX 20, were expected to post mid-single-digit earnings growth, Morningstar’s Halloway said that would not be enough to offset the pullback in resources. “For the ASX 20, we anticipate total earnings growth of only 2 per cent in fiscal 2026 and 2027,” Halloway said. “Adjusted for inflation, real earnings are likely to go backwards.”
Ten Cap portfolio manager Jun Bei Liu said while Rio Tinto, Fortescue and BHP would most likely deliver solid full-year results, weakness in China could weigh on their earnings in the future.
“I don’t think China will give a significant property sector stimulus that boosts the iron ore price. Their housing market is taking a long time to recover, and consumer confidence is fragile,” she said.
“Chinese growth is slowing down, along with US growth, and that is not a great environment for resources companies.”

Still, the disconnect between share prices and earnings has pushed valuations into historically stretched territory.
Morningstar estimated that the ASX 20 had risen 30 per cent since 2023, while underlying earnings have fallen 15 per cent over the same period.
“These stocks now trade at a market cap-weighted premium of about 20 per cent to our fair value estimates, a level we’ve rarely seen in the past decade,” Halloway said. “Eventually, something’s got to give.”