The Weekly | ASX gains, Wall St sets record | Warning for momentum markets

Equity markets rose over the week across both Australian and global indices. In company updates, Xero (ASX: XRO), SRG Global (ASX: SRG) and Hemnet (SS: HEM) are discussed below. In his Op-Ed in the Australian Financial Review, Lead Portfolio Manager Matthew Haupt warns that the momentum rally is being propped up by cheap leverage and may not survive the next 12 months.

Market Updates

The S&P/ASX 200 Accumulation Index rose 0.2% over the week, supported by strong gains in financials and materials, both up 1.8%. The S&P/ASX Small Ordinaries Accumulation Index also finished 0.6% higher. Australian inflation continued to moderate, with trimmed mean measure, the Reserve Bank’s preferred measure of underlying inflation, falling more than expected to 2.4%, its lowest level since 2021.

U.S. equities rallied last week, with the S&P 500 (U.S. large caps) rising 3.5% to a new record high. The Russell 2000 (U.S. small caps) and the MSCI World Index (AUD) also gained 3.0% and 2.1% respectively. Markets responded positively to several catalysts, including confirmation of a new trade framework between the U.S. and China, dovish commentary from several U.S. Federal Reserve officials (signalling a preference for lower interest rates), and weaker consumer spending data, which increased expectations for a September rate cut. President Trump’s proposed tax package passed its first procedural hurdle in the Senate. If enacted, the bill would extend expiring tax cuts, removing a potential headwind to consumption, albeit raising concerns about growing national debt.

Oil prices declined 12.0% in the week as tensions in the Middle East eased, reversing the previous week’s gains.

Key watchpoints for the week ahead include the European Central Bank Forum, where top policymakers, including U.S. Federal Chair Jerome Powell, are expected to provide insights into the economic and monetary outlook. In the U.S., upcoming employment data will be closely watched for signs of further labour market softening. Attention will also turn to next week’s RBA meeting on 8 July, and the scheduled end of President Trump’s 90-day tariff pause on 9 July.

Stock Watch

Xero

Xero, a global provider of cloud-based accounting software for small and medium-sized businesses, last week announced its largest-ever acquisition: the purchase of U.S. payments platform Melio for US$2.5 billion (A$3.9 billion), with up to US$500 million in earn-outs. The deal, funded by a US$1.56 billion equity raise and US$1 billion of cash and debt, fast-tracks Xero’s expansion in the U.S. market and aligns with its 3×3 strategy. Melio’s accounts payable and receivable capabilities will enhance Xero’s platform, offering customers greater control over payments and supporting stronger customer retention and monetisation. We view the acquisition as strategically sound, broadening Xero’s addressable market and supporting long-term growth and margin expansion.

Held in: WAM Leaders (ASX: WLE), WAM Income Maximiser (ASX: WMX), WAM Active (ASX: WAA) and Wilson Asset Management Leaders Fund

SRG Global

SRG Global is a diversified engineering and construction services company with strong recurring revenue streams and long-standing relationships across infrastructure, resources, energy, and defence. Last week, the company announced $850 million in new contracts with blue-chip and repeat clients, including BHP, Origin Energy, Defence, and NextDC. These wins lift SRG’s record $3.4 billion order book, with approximately 80% of earnings now recurring. Management recently upgraded FY2025 guidance, forecasting EBITDA of $125–128 million, roughly 30% year-on-year growth. A robust pipeline and net cash position (holding more cash than debt) underpin further dividend upside.

Held in: WAM Capital (ASX: WAM) and WAM Active (ASX: WAA) 

Hemnet

Hemnet is Sweden’s leading property advertising platform, benefiting from strong network effects and a dominant market position. Although still under-monetised relative to global peers, its average revenue per published listing (ARPL) has delivered consistent growth over the past five years. We continue to see material upside via product upsell, pricing power and housing transaction volumes recovery, positioning Hemnet for multi-year earnings growth. Earlier this month, the Swedish government proposed easing mortgage rules to support first-home buyers – a potential medium-term catalyst for fresh listing activity.

​​​​​Held in: WAM Global (ASX: WGB)

Symbos (Allegros Funds)

Symbos is a growing provider of specialised business process outsourcing (BPO) services to a long-standing blue-chip customer base. The company has forged trusted relationships with Australia’s largest banks, insurers, utilities and telecommunication providers. In April 2024, our investment partner Allegro Funds acquired Symbos (then called ‘Nutun Australia’) from its South African parent company. Earnings have continued to grow under Allegro’s ownership, and we are looking forward to seeing the benefits of ongoing productivity improvements and growth initiatives.

Held in: WAM Alternative Assets (ASX: WMA)

Middle Eastern conflict threatens to push up oil prices and global inflation

One potential sign of ‘the end of U.S. exceptionalism’ is a negative swap-spread on U.S. treasury bonds, reflecting compensation required to price in government counterparty risk. In this case, relating less to default risk than to risks around inflation, interest rate uncertainty and the regulatory cost of holding bonds. At present, 10-year swap spreads sit at -55 basis points implying this government counterparty risk is currently present in the market. The dominant market narrative is that capital regulations have constrained banks and primary dealers willingness to hold these bonds on their balance sheets which has led to this negative swap-spread, however our work suggests this relationship doesn’t necessarily hold through time, and that this spread may continue to persist as proposed Federal Reserve changes do not in fact make it materially easier for banks and primary dealers to hold U.S. Treasuries. More broadly, we do see signs of substantial leverage across the system, something worth monitoring as we go forward.

You can read further insights on U.S. bank capital regulations via our website here.

Index returns performance table

The momentum trade is back, but it won’t last long

Momentum stocks might look irresistible right now, but Matthew Haupt warns the rally rests on shaky ground. In today’s Australian Financial Review he explains why high global uncertainty, leverage-fuelled buying and a “cotton-wool” money-market are masking serious risks for momentum investors.

Read his Op-Ed to see why caution, not crowd-following, could protect your portfolio over the next 12 months.

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^*All Australian S&P indexes in this table are accumulation indexes, meaning they account for both price changes and the reinvestment of dividends, providing a measure of total return.

^#MSCI World (MSCI Daily Total Return Net World) and MSCI World SMID (MSCI WORLD SMID CAP Net Return) are both in AUD and are total return indexes i.e. include share prices and dividends. S&P 500 Index and Russell 2000 Index are similarly total return indexes.

^{^}Corporate bond yields represent the return investors receive for holding debt securities issued by companies. These yields vary based on factors such as the issuer’s credit rating, economic conditions, and market interest rates, serving as a key benchmark for corporate borrowing costs.

^**Australian long-term government bond yields represent the interest rates on government debt securities with extended maturities, typically 10 years or more. These yields reflect investor expectations for inflation, economic growth, and monetary policy, serving as a key benchmark for long-term borrowing costs in the economy.

^##The RBA cash rate refers to the interest rate set by the Reserve Bank of Australia (RBA) for overnight loans between banks. It serves as a benchmark for borrowing costs across the economy, influencing interest rates on mortgages, savings accounts, and business loans.