Wall Street is at record highs — so why is the ASX falling behind?
Wall Street has returned to record highs, but Australian shares are moving in the opposite direction.
The S&P 500 and Nasdaq reached fresh records this week as AI-linked technology stocks continued to drive earnings expectations higher. The S&P 500 is up about 14% in 2026 and the Nasdaq almost 19%, while the ASX 200 has slipped back into negative territory for the year after falling back below 8,700 points.
The difference goes beyond technology stocks outperforming miners. The US market has a much larger concentration of companies benefiting directly from AI investment, while Australia remains dominated by banks and resources at a time when domestic borrowing costs are rising and commodity momentum has weakened.
That leaves the ASX facing a very different earnings setup. CBA, NAB, Westpac and ANZ are dealing with another RBA rate hike, while BHP and Rio Tinto remain tied to China, iron ore and copper. Wall Street, by contrast, is still being supported by some of the fastest profit growth in large-cap technology.
The earnings gap is becoming harder to ignore
US shares are entering the third-quarter reporting season with strong profit expectations. S&P 500 earnings are expected to rise by close to 30% from a year earlier, with technology and AI-linked companies among the main contributors.
Australia does not have an equivalent group of mega-cap growth companies pulling the index higher. The ASX’s largest weights sit in banking and resources, sectors that are far more exposed to domestic interest rates, Chinese demand and commodity prices.
That difference in index composition is showing up in performance.
For Australian traders, the divergence creates more than a simple ASX-versus-Wall-Street comparison. CFDs can provide long or short exposure to individual Australian shares as banks, miners and technology stocks respond to very different earnings and macro conditions.
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Australia has much less direct AI exposure
The biggest structural difference is technology. US indices have become increasingly tied to companies selling AI chips, cloud infrastructure, software and data-centre capacity. Nvidia, Microsoft, AMD, Alphabet, Amazon and other large technology companies are generating direct revenue from the current investment boom.
Australia has no comparable group at the top of the ASX. Technology represents a much smaller share of the Australian market, while financials and materials dominate index weightings. That means a global surge in spending on AI infrastructure can lift Wall Street far more directly than it lifts the ASX.
Australian investors can still gain indirect exposure through uranium, copper, data-centre infrastructure and selected technology stocks, but those companies do not carry enough index weight to offset sustained weakness across the banks or major miners.
The result is an earnings mismatch. US technology companies can keep lifting index-level profits even while rates stay high, whereas Australia needs banks, miners and domestic cyclicals to perform at the same time.
The banks are now dealing with a 4.60% cash rate
The Reserve Bank of Australia raised the cash rate to 4.60% at the end of September, its fourth increase of 2026 and the highest level in 15 years. Core inflation remains above target, and the RBA has left the door open to further tightening if price pressures persist.
Higher rates can support bank margins, but they also raise mortgage repayments and reduce the amount households can borrow. That creates a less straightforward earnings outlook for CBA, NAB, Westpac and ANZ than the simple assumption that rate hikes are positive for banks.
CBA shares have fallen from around A$159 in early September to about A$148 in early October, while the broader financial sector has also weakened.
The next phase depends on whether margin benefits outweigh slower housing turnover, softer credit demand and rising repayment stress. If the RBA hikes again, the banks could gain on pricing while losing momentum in volumes.
CBA, NAB and Westpac are exposed to slower housing activity
Australia’s banking system is heavily tied to residential property. CBA and Westpac have particularly large mortgage books, while NAB and ANZ also carry substantial housing exposure alongside business lending. Higher interest rates increase the cost of servicing existing loans and reduce borrowing capacity for new buyers.
That can slow mortgage growth even when house prices remain relatively firm. Fewer transactions mean less new lending, while stronger competition for high-quality borrowers can force banks to discount mortgage rates and give back some of the margin benefit from higher cash rates.
The big four are also passing the latest RBA increase through to variable mortgage customers. NAB, for example, is increasing variable home-loan rates by 25 basis points from October 9.
The banks therefore need more than higher headline rates. They need enough loan growth and credit quality to keep earnings expanding while households absorb another increase in repayments.
BHP and Rio are facing a different problem
The miners are not constrained by Australian mortgage demand, but they are dealing with their own growth questions.
BHP closed around A$61 on October 8 after trading above A$68 earlier in the year, while the materials sector has remained volatile as iron ore and copper respond to weaker Chinese demand and shifting global growth expectations.
BHP and Rio are increasingly relying on copper for growth as both companies reduce their dependence on iron ore over time. That gives them exposure to electrification, data centres and power infrastructure, but iron ore still generates a large share of current earnings.
China therefore remains central. A weak property sector and softer fixed-asset investment reduce one of the traditional sources of steel demand, while stronger manufacturing and infrastructure spending provide only a partial offset.
The miners can still benefit if copper demand strengthens or Beijing delivers stronger stimulus, but their earnings path is less direct than the AI-driven growth currently supporting US technology stocks.
Banks and miners are falling at the same time
The ASX can often absorb weakness in one major sector when another is performing well. The current problem is that financials and materials have both been under pressure.
That combination is difficult for smaller sectors to offset because banks and miners account for such a large share of the index. Healthcare, utilities and selected technology names can provide support, but they do not have the same weighting as CBA, BHP, NAB, Westpac, ANZ and Rio.
The US has the opposite concentration problem. Its rally is also narrow, but the companies carrying the largest weights are still delivering strong earnings growth. The ASX is concentrated in sectors where earnings are currently facing more pressure.
Higher Australian rates are also hitting domestic growth
The RBA’s tightening cycle affects more than banks. A 4.60% cash rate raises borrowing costs for households and businesses, while mortgage repayments reduce disposable income available for retail, travel and other discretionary spending. That creates pressure across consumer shares even before unemployment rises materially.
Australian companies also face higher funding costs when refinancing debt or investing in new capacity. Smaller companies and property-related businesses are generally more sensitive because they have less access to cheap global capital than the largest US technology firms.
Wall Street is hardly immune to higher yields. US 10-year Treasury yields have climbed above 5%, but large technology companies such as Microsoft, Alphabet and Nvidia generate enough cash flow to keep funding AI investment internally.
The Australian market has fewer companies with that combination of strong earnings growth, high margins and large cash balances.
The ASX is not simply a cheaper version of Wall Street
The performance gap may make Australian shares look more attractive on valuation, but the two markets are priced around very different earnings profiles.
US valuations are higher partly because investors are paying for stronger expected profit growth in technology and AI infrastructure. Australia trades on lower multiples but remains more exposed to cyclical sectors whose earnings depend on credit growth, housing activity and commodities.
That does not mean the ASX needs an AI boom to outperform. A stronger China recovery, falling domestic rates or renewed bank earnings growth could quickly improve the setup.
For now, however, the market lacks the same earnings engine pushing US benchmarks to repeated records.
What could close the gap?
A shift in RBA policy would remove one of the biggest domestic headwinds. If inflation cools enough to stop further tightening, mortgage pressure would ease and rate-sensitive sectors could stabilise.
China is the other major swing factor. Stronger property, infrastructure or industrial demand would support iron ore and improve the outlook for BHP and Rio, while sustained copper strength would provide an additional earnings boost.
US earnings also need to keep delivering. The current divergence assumes that AI-related profit growth remains strong enough to justify expensive valuations. If Nvidia, Microsoft, AMD and other major technology companies disappoint, the gap between Wall Street and Australia could narrow from the US side instead.
Trading Australian shares with Mitrade
The gap between Wall Street and the ASX reflects different earnings drivers rather than a single global risk-on or risk-off trade.
Through Mitrade, eligible Australian clients can use CFDs to take long positions when expecting Australian shares to rise or short positions when expecting further weakness. That allows separate views across CBA, NAB, Westpac, ANZ, BHP, Rio Tinto and the broader Australian market.
Stop-loss and take-profit orders can define exit levels, while pending orders allow positions to open when a selected price is reached. Accounts can be funded in AUD, and a demo account is available for testing strategies without committing real capital.
Mitrade is regulated in Australia by ASIC. CFDs are leveraged products, so both potential gains and losses can be magnified.
Start trading Australian shares in three simple steps
You might be interested in…
1. Why is the ASX underperforming Wall Street?
The ASX has far less exposure to large AI and technology companies and much greater concentration in banks and resources. Higher Australian interest rates and softer commodity momentum are weighing on those sectors while US technology earnings remain strong.
2. How do higher RBA rates affect Australian shares?
Higher rates can support bank margins, but they also raise mortgage repayments, slow credit growth and increase borrowing costs across the economy. Consumer, property and highly leveraged companies can also come under pressure.
3. Could BHP and Rio help the ASX recover?
Yes. Stronger iron ore or copper prices would improve the earnings outlook for two of the market’s largest resource companies. A stronger Chinese growth outlook or additional stimulus could also support the broader materials sector.
Disclaimer: The content presented above, whether from a third party or not, is considered as general advice only. CFD trading involves significant risk of loss. Past performance does not guarantee future results. This article serves informational purposes only and does not constitute financial advice. Consider your risk tolerance before trading.
