Amid a strong rally on the Australian Stock Exchange (ASX), Macquarie analysts have cautioned investors to adopt a more defensive approach in portfolio management due to mounting economic risks. Speaking at a briefing ahead of the reporting season, Macquarie’s Australian strategist Matthew Brooks highlighted rising interest rates and slowing global economic growth as key concerns that could weigh on corporate profit outlooks.

The ASX has recently hit record highs, closing Thursday at 9,271.6 points after reaching an intraday peak of 9,296.7. The broader market has risen by about 6 percent over the past three weeks, partially catching up with global gains following volatility linked to the conflict in Iran. Eight of the ASX’s 11 sectors, including materials and financials, showed gains in the most recent session.

Despite the upbeat market momentum, Brooks urged investors to focus on stocks with strong earnings predictability rather than chasing further price momentum. Macquarie’s proprietary “macro velocity indicator,” which measures shifts in global interest rates and economic momentum, has been negative since May, suggesting an environment that favors quality, defensive stocks.

Central banks worldwide, including those in the United States and Japan, have started raising interest rates again after a period of easing. The U.S. Federal Reserve is widely expected to consider rate hikes in its September meeting. This tightening monetary policy coincides with signs of slowing economic growth, a combination that could pressure share valuations and earnings.

Brooks also remarked on the ongoing impact of the artificial intelligence investment surge by large technology firms, often referred to as hyperscalers. Major players like Google and Microsoft have raised substantial amounts of debt—$80 billion and $30 billion respectively—to fund expansive data center projects. This borrowing spree has contributed to rising U.S. long-term bond yields, the highest since 2007. An environment of elevated volatility is thus likely, with earnings results provoking uneven stock reactions, as exemplified by logistics company Brambles, which saw its shares tumble 25 percent after missing profit estimates by a small margin.

Within Macquarie’s recommended defensive names, Brooks cited Coles, Transurban, Medibank, and ResMed—the latter noted for its resilience in healthcare amid broader sector challenges. Other Macquarie analysts expressed mixed sentiments across industries. Banks analyst Victor German described the sector as a relatively safe haven, with expectations that major banks are unlikely to deliver significant disappointments despite recent short-selling activity following budget-related tax changes.

Conversely, Ian Myles, infrastructure and utilities analyst, projected profit pressures between $300 million and $500 million for energy companies AGL and Origin, driven by government interventions in electricity and gas markets. A proposed gas reservation policy and a surge in battery-related investments delivering minimal returns were flagged as ongoing risks. Myles also forecast a challenging outlook for Qantas in 2026 due to the Iran conflict, with the carrier expected to rely heavily on cost-cutting until fuel prices stabilize and its Jetstar division can resume expansion.

In healthcare, analyst Christine Trinh noted a sector divide. She highlighted ResMed and Ramsay Health Care as potential outperformers, with cost structures and funding dynamics improving. However, she warned that biotech firms Cochlear and CSL face heightened headwinds, including increased competition and operational setbacks—particularly CSL’s delayed manufacturing upgrade and potential clinical trial requirements—which may lead to earnings downgrades.

Overall, Macquarie recommended that investors use the current market strength to prioritize quality and defensive names, preparing for increased volatility and income pressure amid a backdrop of higher interest rates and slower economic growth.