What historically low numbers from banks and retailers mean for the market

READ

This year’s August reporting season has delivered its fair share of drama: from pressures on major banks, to stark sales slides in retail, the economic reality of rising interest rates and persistent inflation is finally biting. Meanwhile, a wave of private equity takeovers highlights the growing disconnect between fundamental value and volatile market pricing.

In this podcast Natixis Investment Managers’ Daniel Shelest sits down with IML large cap portfolio managers Michael O’Neill and Daniel Moore to dissect the key takeaways from reporting season.

They discuss

• The mortgage growth freeze: Why major banks are facing the lowest mortgage growth since COVID.
• The retail squeeze: What tumbling sales at JB Hi-Fi and Temple & Webster reveal about the health of the Australian consumer.
• The healthcare rebound: Why CSL and ResMed bounced back sharply
• The takeover surge: How market short-termism and AI fears opened the door for premium bids on Steadfast and Cleanaway.
• Navigating the next leg: Why high-quality, low-debt industry leaders with pricing power are well placed for the economic cycle ahead.

Follow our podcast, ‘Navigating the Noise’ on Spotify, Apple or Amazon to be notified of new episodes.

Lightly edited transcript – Recorded on 21 August 2026

Daniel Shelest (DS): Hello and welcome to Navigating the Noise, a podcast by Natixis Investment Managers, where we bring you insights from our global collective of experts to help you make better investment decisions. I’m Daniel Shelest, and today I’m joined by Michael O’Neill and Daniel Moore, portfolio managers in IML’s Large Cap team, to discuss what they have learned in reporting season so far. Dan, Mike, gents, thank you for joining us today.

Daniel Moore (DM) and Michael O’Neill (MO): Thanks, Dan.

DS: Now, you know, there’s been a lot of dialogue in recent months about interest rate rises and tax changes and how that might flow through to the banking sector. How has this played out in reporting season, do you think?

MO: Well, certainly we’ve seen some of the tailwinds that have been behind the banks’ results moderating through reporting season, and the revenue outlook has started to look a bit more challenging across the sector. Margin trends have been positive, but pressure has really stepped up on the margin. And part of this is due to the outlook for credit growth.

I mean, these were trends we were seeing even before we started to see the impact of the May changes post-budget on mortgage applications. So across the banking sector, the major banks saw a 12 to 20%—depending on the bank—fall in mortgage applications over that period since May. And interestingly, in investor lending, it was even more stark at 17 to 28% down. As you’d imagine, confidence is a bit weaker in that part of the market.

What really stood out to us, though, was NAB’s expectation for mortgage growth for the next financial year. They’re talking 2.5% mortgage growth for financial year 2027. Let’s put this in context. The only time we’ve seen the major banks having lending growth at levels like this was in the middle of COVID. Otherwise, we haven’t actually seen it across the sector’s history.

DM: Yeah, it’s pretty incredible. And that’s why—that’s why the margins are under pressure, because there are just fewer loans floating around, new loans, and the banks are competing extra aggressively to win those new loans. So, you combine that with that weak credit growth, and that’s why the share prices of the banks have been down across August.

DS: There you go. Yeah. That’s super interesting. It sounds like it’s pretty tough for banks at the moment. Let’s touch on retail, actually. We’ve seen some pretty interesting results with the likes of Temple & Webster, perhaps JB Hi-Fi. They’ve posted some pretty bad numbers, and, you know, what have you heard while talking to companies, and what does this tell you about the strength of the consumer?

DM: Yeah, it’s a bit like the banks. There have been quite a few numbers that we haven’t seen for a long time. So JB Hi-Fi, which, you know, we rate as definitely one of the better retailers, if not the best retailer in the country, had very weak sales in Q4—the June quarter—and their July sales were actually down 1.4%, which is again, you’d have to go back to 2014 for the last time JB Hi-Fi sales were in decline. And Temple & Webster, the online furniture retailer, saw their sales down 13% in July and August — pretty stark numbers.

Really, this is just on the back of a weak consumer. Talking to the companies, it’s a number of things. It’s really the cumulative impact of rising rates, the rising oil price, and obviously the tax changes as well. All piling on top of each other, leading to a pretty weak environment.

What gives us extra caution around retail — which we have been cautious about for a long time — is the problem that their costs are rising at quite a fast rate. So you’ve got this very weak sales environment, but you’ve got minimum wage increases of over 4.5%, 4.75%, and you’ve got rents growing at 4 to 5% because all the shopping centres are full. They’ve got record occupancy, so they’re really pushing through really high rent increases. So the outlook for earnings is very poor, and it’s just going to be interesting to see whether this is short-lived or if it continues.

If it continues, FY27 is going to be a pretty bleak year for retailers. We’ve got a few results still to come. Wesfarmers is going to be fascinating. That’s on Thursday next week. When we speak to the property trusts, which give us a really good insight into which retailers are doing well, they have told us that discount department stores’ sales were negative in the June quarter. Consensus still has some pretty strong growth numbers in Kmart, so we definitely see Wesfarmers as a company that’s going to be potentially pretty vulnerable next week.

DS: There you go. That’s pretty fascinating. Let’s talk healthcare for a second, if you don’t mind. It used to be a beloved sector for investors, but it was the worst-performing sector last financial year, down, I believe, 36% or so. These historical market titans, like CSL, have been genuinely hammered by investors, but I believe CSL has bounced back really well. It’s up 70% from the low. Is it just CSL, or are things changing for healthcare, would you say?

DM: Yeah, no, we’ve definitely seen the healthcare sector de-rate and then, this August, bounce pretty sharply across the world. CSL has definitely been one of the better ones.

The issue with markets these days, where they are driven increasingly by quant funds and index funds, is that when you do disappoint, the momentum can be really against you. We saw CSL de-rate to around 10 times earnings at the lows, but if your results are marginally better than expected, the opposite can occur. So we’re seeing CSL re-rate substantially. The result, to be honest, was within 1% or 2% of what we thought, and what pretty much everybody else thought, but the stock rallied 35% this month alone, mainly because the stock was just way too cheap.

ResMed also had a pretty good result. That’s up 8%. Again, the multiples were just well below market averages for above-market-quality businesses. So, we’re happy with their performance.

We’ve been trimming a little bit of CSL into this rally, because largely our forecasts haven’t changed. The business is doing better, but it’s not growing double digits like it used to. They’re forecasting 5% growth for next year — a good improvement, but still below where it probably should be. So we’ve been trimming a little bit of that. But yeah, it’s been so far a good month for the funds.

DS: Fantastic. Now, as you guys know very well, there’s been quite a few takeovers recently on the ASX, a number in IML’s small-cap funds, and a couple in the large-cap funds too, like Steadfast and Cleanaway. Sorry, perhaps a multi-pronged question here, but why are there so many takeovers, do you think? And are you happy with these takeovers, or do you think more are likely to come through?

MO: Yeah, it’s interesting, Dan. We’re seeing a lot of short-termism in markets. As Daniel pointed out, quant funds, a lot of thematic trading, and a very reactive and volatile market in pockets — whether it’s reacting to the consequences of the issues in the Strait (of Hormuz) and supply of oil, or whether it’s threats of AI that are a little bit more uncertain. The market seems to latch onto these themes, and stock prices can move around a lot.

With this level of volatility, you can get huge disconnects between fundamental value and share prices. Cleanaway and Steadfast are both great examples of that.

In Steadfast’s case, they’re a very defensive, quality business that we’ve owned since their IPO some 13 years ago. The proof is in the pudding: they’ve delivered 13% compound earnings growth year-on-year on average since that period. 13% growth is something not to be sneezed at, and yet the stock price was down 30% for the year to the start of June on AI fears, even though the earnings were still growing.

We thought these fears of disruption to the insurance broking and underwriting agency businesses that they own were excessively negative, and we really thought that their business would be in a position to continue to grow. That volatility in the share price caused an opportunity for an industry player to step in and make a takeover bid for Steadfast, because they saw the true value of the company even though the listed market didn’t. What we’ve seen is a bid at a 52% premium to that share price, which is being consummated as we speak.

In Cleanaway’s case, the similarity is short-term reactions in the share price. For Cleanaway, higher oil prices mean that the waste logistics that they manage get more expensive and their costs go up. But they have some really strategic assets. They own landfills and transfer stations that are irreplaceable, HALO-type assets (Heavy Assets, Low Osolescence). They also get pass-throughs of cost increases through fuel with a lag.

So, despite the conflicts we’ve seen and the disruptions in oil distribution, they were still growing double digits, hence the opportunity. In their case, we’ve seen EQT come in with a bid at a 32% premium to their share price. So if anything, sometimes these dislocations can cause opportunities.

DM: Yeah. And to your point, are we going to see any more? Well, there have been another two this month that our small-cap team has been fortunate to own.

To Mike’s point, if there’s that disconnect between the fundamentals and the share price, private equity will step in. We just have a share market that’s pretty short-term. So if that continues, there’ll be more. To be fair, we hope there’s not too many more, or there won’t be enough stocks for us to invest in! But yeah, no, it has definitely benefitted the portfolio and helped our performance.

DS: Fantastic. Very good. All right, well, let’s zoom out for a second. Looking ahead now, what do you think overall about the Aussie equity market, and how do you think your portfolios are positioned?

DM:I think we’ve talked about this for a long time—about being a little bit more cautious on the outlook for the economy, particularly banks and retailers. That caution is paying dividends at the moment.

The impact of lower credit growth and weaker sales—we’ve only really seen a few months of it. The next leg is whether that weakness is sustained, and then the de-leveraging impact of the higher costs they will face no matter what their sales are. So, we’re still cautious on that element.

Unemployment has just had a surprising tick-up to 4.5% that came out the other day. And just general inflation is still persisting, you know, as we talk about minimum wage, rents, insurance rates still going up. Mike, they’re going up, what, 4, 5%?

MO: Yeah, so there’s still a lot of inflation yet to flow through the system.

DM: Yeah. And then on the resource side, the resource names have been pretty strong. Obviously, there is still a big CapEx boom going on with AI around the world, which has been supportive, particularly for copper. We’ve benefitted through our exposure to BHP, which has helped.

But I think, really, to navigate these markets right now, you’ve got to be a very high-quality business. You’ve got to be an industry leader with a degree of pricing power. We really want to invest in companies run by good management teams. We want to make sure the companies don’t have too much debt, and we want companies that can grow through most economic cycles.

We also really want those companies to be reasonably priced because bond yields are quite high. The long-term bond yields have been rising, and that is a bit of an anchor for valuations. Equity markets have been rising and rising in the face of those bond yields rising, so we are also extra cautious on the higher PE stocks.

So, we feel pretty well placed, and reporting season so far has been kind to us.

DS: There you go. Well, that’s good to hear. Let’s wrap it up there. Thanks, Dan and Mike. We genuinely appreciate you sparing some time amid what sounds like a very busy time for IML. And of course, thank you to our listeners for tuning in. Please tune in again soon to hear more from the team at IML, as well as others in our global collective of experts.

This podcast has been prepared and distributed by Natixis Investment Managers Australia Proprietary Limited, ABN 60 088 786 289, AFSL 246830 and includes information provided by third parties, including Investors Mutual Limited (“IML”) AFSL 229988, the responsible entity and investment manager for the IML Funds.

Although Natixis Investment Managers Australia believes that the material in this podcast is correct, no warranty of accuracy, reliability, or completeness is given, including for information provided by third parties except for liability under statute which cannot be excluded. This material is not personal advice. The material is for general information only and does not take into account your personal objectives, financial situation or needs. You should consider and consult with your professional advisor whether the information is suitable for your circumstances. The opinions expressed in the materials are those are the speakers and may not necessarily be those of Natixis Investment Managers Australia or its affiliate investment managers. Before deciding to acquire or continue to hold an investment in a fund, you should consider the information contained in the product disclosure statement in conjunction with the target market determination, TMD, available at www.iml.com.au.

Past investment performance is not a reliable indicator of future investment performance and no guarantee of performance, return of capital, or a particular rate of return is provided. Any mention of specific company names, securities or asset classes is strictly for informational purposes only and should not be taken as a recommendation to buy, hold, or sell. Any commentary about specific securities is within the context of the investment strategy for the given portfolio. The material may not be reproduced, distributed, or published in whole or in part without the prior written consent of Natixis Investment Managers Australia.

Copyright 2026 Natixis investment Managers Australia. All rights reserved.