Saward Dawson > Wealth Advisory Wrap > Monthly View > March 2026
A look back at last month and an outlook for the months ahead
What we liked
- Solid Australian employment data: Australia’s unemployment rate remained at 4.1% in January, the same as December, in seasonally adjusted terms. Economists say the numbers suggest that the labour market remains relatively tight and the economy is still operating close to capacity. This keeps the possibility of further interest rate hikes in coming months a possibility.
- January U.S. Nonfarm Payrolls beat expectations: January payrolls saw a solid increase (130 k), lending some confidence to labour market resilience and helping underpin expectations around future Fed policy stability. Although February’s release was due in early March, the stronger January backdrop supported markets in February.
- University of Michigan Consumer Sentiment: The University of Michigan’s preliminary US consumer sentiment index increased to 57.3 in February, the highest level in six months and stronger than expected. This suggested a gradual improvement in household outlook — a positive signal for consumption growth and supportive for equities and risk-taking assets.
- Eurozone Manufacturing PMI expanded to highest in 44 Months: The HCOB manufacturing PMI rose above the 50-growth threshold for the first time in months, driven by new orders and output gains. This signalled improving industrial momentum and boosted sentiment toward Eurozone equities.
- UK headline CPI inflation: CPI inflation read came in at 3.0% annualised. This was down from 3.4% in December 2025 and the lowest in many months, feeding expectations for BoE easing. While the disinflation trend is encouraging, the rate of inflation remains above target.
- Japan snap election: Takaichi decisively wins election resulting in Japanese stocks soaring as investors priced in a stable government and a more proactive economic strategy, with expectation for further expansionary fiscal measures.
What we didn’t
- Conflict in Iran: A pre-emptive strike on Iran by the US/Israel has seen market volatility rise. Iran has a direct impact on oil supply as it can adversely impact shipping flows through the Strait of Hormuz, where ~20% of global seaborne oil supplies need to pass through. While volatility from such an event is usually short-lived, our concern centres around spiking oil prices and how sustainable this may be.
- RBA raises the cash rate: The official cash rate was raised to 3.85% in early February. While the rise was not a major surprise, markets read the commentary from the recent meeting as a hawkish pivot amid sticky inflation.
- Australian inflation remained well above target: Australia’s headline inflation held at 3.8% y/y in January, above the RBA’s 2-3% target, reinforcing markets’ expectations for more rate hikes and pressuring interest-rate-sensitive asset classes. This higher inflation print contributed to hawkish pricing in Australian fixed income and a firmer AUD.
- US Q4 2025 GDP: Growth slowed to around 1.4% annualised, reinforcing concerns about moderating economic momentum. US equities softened and bond yields eased (i.e. government bond prices rose), reacting to the softer than expected data.
- US trade policy risk: Supreme Court limits broad tariff authority, and the administration signals alternative trade actions, spooking markets and adding to risk-off sentiment in February.
- Sticky US inflation: Core PCE inflation from December came in at 3.0%. While in-line with market expectations it highlights persistent price pressures and remains above the US Federal Reserve’s 2% target. The Producer Price Index, a monthly economic indicator that measures the average change over time in the selling prices received by domestic producers for their output, also rose more than expected coming at 0.8%, more than the 0.6% gain in December and well ahead of the Dow Jones consensus estimate for 0.3%.
- China Services PMI Weakens: China’s January non-manufacturing PMI fell to 49.4, down from 50.2 in December, hitting a 37-month low. Non-manufacturing PMI previously snapped a streak of 34 months of neutral or expansionary levels in November 2025, before bouncing back in December. The decline back below 50 in January suggests that the trajectory remains negative.
Base Case
Our view of the most likely scenario for markets over the coming months, for which our portfolios are currently positioned.
76% Probability
Despite recent volatility across financial markets, the underlying foundations of earnings and economic growth remain supportive. Global company profits are solid, governments continue to spend to sustain economic activity, and financial conditions remain relatively loose. Together, these factors provide a constructive backdrop for risk assets, particularly equities. However, current positive investor confidence and heavy exposure to risk assets mean markets are prone to sharp short-term swings, with considerable performance dispersion across regions, sectors and individual stocks. Potential triggers for volatility include the implementation of tariffs, inflation surprises, tighter-than-expected central bank policy, geopolitical developments and stress in bond markets – with geopolitical tensions more recently moving to the fore.
Global inflation has moderated as expected, validating the call for lower inflation in 2025. Even so, inflation outside China is likely to remain structurally higher than it was in the decade before the pandemic, with domestic inflation levels recently showing an upward bias. We expect an uneven path for inflation across all regions in 2026. This increases the risk of episodic market volatility, particularly if tariffs begin to lift prices or if ongoing government spending adds renewed inflationary pressure. At present, however, strong fiscal settings combined with manageable inflation have created a supportive environment for risk assets. In the United States, the “One Big Beautiful Bill”, a large tax and spending package, appears more growth-friendly than initially anticipated, especially when considered alongside deregulation. This underpins a constructive medium-term economic outlook, although the continued build-up in government debt remains a longer-term risk that cannot be ignored.
Central banks are navigating a complex trade-off. Lower interest rates can stimulate growth but may weaken currencies and place upward pressure on bond yields, while higher rates help contain inflation at the risk of slowing economic activity. Most central banks cut rates last year, and the lagged benefits of that easing are expected to become more apparent in the months ahead. As these effects filter through, they should provide support to economic growth and, in turn, corporate earnings and equity prices. This monetary backdrop, when combined with ongoing fiscal support, reinforces the base case of continued economic and earnings expansion rather than contraction.
Liquidity growth remains a critical pillar of this outlook. Large amounts of new and refinanced debt are expected through 2026, making the continued availability of cash and credit essential to sustaining asset prices. Liquidity in this context is defined broadly as the flow of funds that supports financial markets, not merely traditional money supply measures. The system’s capacity to absorb debt issuance without significant disruption will be central to maintaining stable financial conditions. If expected liquidity support from the US Federal Reserve or China’s central bank does not materialise, or if financial conditions tighten unexpectedly, the outlook for risk assets would become more vulnerable.
Longer-term structural growth themes also remain supportive. Investment linked to artificial intelligence, manufacturing reshoring and energy infrastructure is expected to underpin equity market strength over time, broadening profit growth across industries. Lower interest rates and continued government spending should further assist earnings expansion across a wider range of sectors. While risks remain, particularly around tariffs, inflation dynamics and liquidity conditions, the prevailing balance of evidence supports a constructive stance.
For Australian-domiciled investors, the base case favours maintaining a growth-oriented allocation over the medium term, accepting that higher volatility is likely to persist. Periods of market weakness should be viewed as opportunities to add exposure to areas aligned with cyclical recovery and long-term structural growth. Portfolio positioning should continue to reflect economic trends, valuations and central bank policy settings, while also acknowledging the importance of liquidity and the potential for policy-driven disruptions. In summary, the combination of earnings resilience, fiscal support and easing monetary conditions provides a supportive foundation for risk assets, albeit within a more volatile and policy-sensitive environment than in the decade preceding the pandemic.
Bear Case
Our worst-case scenario for the coming months, which we are prepared to position for should conditions deteriorate.
11% Probability
The potential bear case for markets centres on a more pronounced slowdown in consumer spending, led by weakness in the United States and limited improvement elsewhere. Should consumption soften more than expected, company revenues would come under pressure at a time when market valuations remain elevated. Higher inflation or reduced liquidity support from the US Federal Reserve would compound this vulnerability by placing pressure on both profit margins and valuation multiples. In such an environment, earnings forecasts are likely to be revised lower, leaving risk assets exposed to sharp repricing as investor expectations adjust to weaker growth realities.
Financial stability risks also sit at the core of the downside scenario. Stress in the banking system, similar to that experienced in early 2023, could re-emerge if credit markets become more volatile and lending standards tighten. Reduced credit availability would constrain business investment and household borrowing, amplifying economic weakness. At the same time, mounting concerns about government debt levels could prompt bond investors to demand higher yields as compensation for perceived fiscal risk. Rising bond yields would increase borrowing costs across the economy, tightening financial conditions and placing additional strain on already slowing activity. A deceleration in global liquidity growth would intensify these pressures, threatening currently resilient labour markets and undermining consumer confidence.
Inflation risks remain central to the bear case. Rising geopolitical tensions have the potential to disrupt supply chains and energy markets, lifting input costs and feeding through to consumer prices. A sustained oil price spike, defined as an increase in the order of 50–100 per cent from recent lows, particularly in the context of conflict involving Iran, would materially increase inflationary pressures. At the same time, ongoing wage growth and persistently high housing costs could become entrenched, squeezing corporate margins as businesses face rising costs while demand softens. This combination of weaker growth and sticky inflation would create a stagflationary dynamic that is historically challenging for both equities and fixed income.
Under such circumstances, central banks may find themselves constrained. Elevated inflation could prevent policymakers from cutting interest rates, even as economic growth slows. Restrictive monetary settings would therefore persist longer than markets anticipate, weighing on credit formation, investment and asset prices. Fiscal policy may also provide less support than in prior cycles, as high public debt levels limit governments’ capacity to stimulate demand. Reduced fiscal flexibility could further dampen consumer and business confidence, reinforcing the downturn.
China presents an additional source of downside risk. Ongoing weakness in the property sector remains a structural headwind, and if government support measures fail to stabilise prices or restore confidence, high debt levels could drag growth lower. For Australia, which remains closely tied to Chinese demand through resource exports, a sustained slowdown in China would have direct implications for national income, corporate earnings and market sentiment.
In a more adverse scenario, a major geopolitical shock or a significant credit event occurring alongside rising bond yields could trigger a rapid and broad-based market sell-off. Equity markets, particularly those characterised by high valuations and crowded positioning, would be vulnerable to sharp declines. In this environment, a more defensive portfolio stance would be warranted. This would involve increasing cash allocations, reducing exposure to equities, and tilting remaining equity holdings towards more stable sectors such as healthcare, consumer staples and utilities, which tend to exhibit more resilient earnings profiles during periods of economic stress.
For Australian investors, the bear case underscores the fragility of the current environment. Slowing global growth, persistent inflation, tighter financial conditions and elevated geopolitical risk combine to create the potential for material downside in risk assets. Careful attention to liquidity, credit conditions and fiscal sustainability will be critical, as these factors may determine whether the global economy navigates a manageable slowdown or a more disruptive adjustment.
Bull case
Our most optimistic view for markets over the coming months.
13% Probability
In a stronger outcome for global markets, developed economies expand at a faster pace than currently anticipated as policy uncertainty fades and confidence improves. Easing supply chain pressures, resilient labour markets and improving productivity combine to support growth while helping inflation moderate. Improved diplomatic outcomes reduce the impact of tariffs and keep geopolitical tensions contained, limiting disruption to trade and energy markets. Faster adoption of advanced technologies, particularly artificial intelligence without the employment destruction many fear, enhances productivity and lifts global output and corporate profitability, reinforcing a more constructive economic backdrop.
Under this scenario, lower input costs alongside firmer demand support healthy profit growth, with corporate margins holding steady or improving. The integration of artificial intelligence and other efficiency-enhancing technologies strengthens worker productivity and business profitability, underpinning a positive earnings trajectory across industries. As profits expand in line with stronger activity, risk assets would likely benefit from both earnings growth and improved investor confidence.
Fiscal policy provides an additional tailwind. Governments increase spending to stimulate economic activity, and while this may add some inflationary pressure, overall growth is expected to outpace inflation. Deregulation and fiscal stimulus further reinforce momentum, creating conditions that favour equities and other growth-oriented assets. Coordinated government support across major economies enhances the durability of the expansion, particularly if supported by strong household and corporate balance sheets.
In Australia, higher government spending and interest rate cuts beginning in 2025 are contributing to stronger domestic growth. Although the global recovery remains uneven, policy stimulus, together with comparatively lower levels of government debt, provides a supportive foundation for economic expansion. Solid household and business balance sheets further strengthen the outlook, enabling consumption and investment to respond positively to improved conditions.
Monetary policy settings are central to this constructive case. If central banks maintain interest rates below inflation and expand liquidity support, financial conditions would remain accommodative. Low or negative real interest rates, defined as nominal rates adjusted for inflation, would favour growth assets by reducing discount rates and encouraging capital deployment. Expanded liquidity would also support credit availability and asset prices, potentially triggering a renewed upswing in markets.
For Australian investors, this stronger scenario supports maintaining a growth-oriented portfolio with relatively low cash allocations. As economic indicators continue to improve, increasing exposure to cyclical sectors that benefit most directly from accelerating activity would be appropriate. In this environment, the combination of policy support, technological advancement and resilient balance sheets provides a favourable setting for risk assets, with earnings growth and liquidity conditions reinforcing market strength.
Stock in Focus: Union Pacific Corporation
History
Union Pacific Corporation is one of the largest and oldest railroad operators in the United States, founded in 1862 and headquartered in Omaha, Nebraska. Through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. The company currently has a market valuation of ~USD$160Billion.
It provides freight transportation across 23 Western U.S. states and maintaining an extensive rail network exceeding 30,000 miles across the western two-thirds of the country and employs ~30,000 people.
It offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, and ethanol and renewable biofuel producers; and construction products, industrial chemicals, plastics, forest products, specialized products, metals and ores, petroleum, liquid petroleum gases, soda ash, and sand, as well as finished automobiles, automotive parts, and merchandise in intermodal containers.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.
Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.
