Australian shares edged higher on Wednesday, with the S&P/ASX 200 rising 0.3% to approach a fresh record high. The advance was led by mining and technology stocks, while Commonwealth Bank of Australia (CBA), the country's largest lender, slipped even after reporting an 8% rise in profit.
The mixed session highlights a market that is climbing on the strength of a few heavyweight sectors, even as some of its biggest names show signs of strain. For everyday investors, the question is whether the rally has room to run or is getting ahead of itself.
Miners and tech carry the index
Mining stocks were the clear leaders on Wednesday, with the sector climbing 0.8%. BHP, the world's largest listed miner, rose 0.9%, helping to lift the benchmark. Technology shares also posted solid gains, adding to the positive tone.
The strength in miners comes as global commodity prices remain firm, supported by ongoing demand from China and supply constraints in some key materials. Tech stocks, meanwhile, have been buoyed by optimism around artificial intelligence and a resilient earnings season in the United States.
But the rally is not universal. Commonwealth Bank fell on the day, despite reporting an 8% increase in profit. The bank's shares slipped as investors focused on a 16% drop in home loan applications, a sign that higher interest rates are starting to cool demand for mortgages.
That divergence — strong gains in some sectors, weakness in others — is a reminder that the market's overall move can mask significant variation underneath.
What the RSI is telling investors
One indicator that has caught traders' attention is the relative strength index (RSI), a momentum gauge that measures how quickly prices have moved over a given period. The RSI for the ASX 200 has been hovering near 70, a level that many technical analysts interpret as “overbought.”
An overbought reading can sometimes signal that a pullback is due, but it is not a reliable predictor of an immediate drop. As Bell Direct, an Australian brokerage, noted, a high RSI can simply reflect that a few heavyweight sectors are pulling the index higher, rather than indicating that the whole market is stretched.
In this case, the concentration of gains in miners and tech means the index's RSI may be overstating the breadth of the rally. Many stocks outside those sectors are not participating in the advance, which could make the market more vulnerable to a rotation if sentiment shifts.
CBA's profit rise masks mortgage slowdown
Commonwealth Bank's 8% profit increase shows that Australia's biggest bank is still generating healthy earnings, helped by strong margins and a large customer base. However, the 16% fall in home loan applications is a warning sign for the broader economy and for the banking sector.
Higher interest rates, which the Reserve Bank of Australia has lifted aggressively over the past year to combat inflation, are making mortgages more expensive and cooling demand for housing credit. That trend is likely to weigh on future lending growth for banks, even if their current profits remain solid.
For investors, the key takeaway is that bank earnings may have peaked, and the coming quarters could see slower growth as the property market cools. This is a theme that has also affected other property-related companies, as seen in Pexa's recent profit warning.
What it means for investors
The ASX 200's proximity to a fresh high is a positive sign for the overall market, but it also raises the stakes for investors who are considering adding to their positions. With the RSI near overbought levels, some traders may be tempted to take profits, but the indicator alone is not a reason to sell.
Instead, investors should focus on the fundamentals driving the market. Miners are benefiting from strong commodity prices, while tech stocks are riding a wave of innovation and earnings growth. But both sectors are sensitive to global economic conditions, and a slowdown in China or a shift in US interest rate expectations could quickly change the picture.
For those with a long-term horizon, the current market conditions underscore the importance of diversification. A portfolio that is heavily weighted toward banks or miners could be more exposed to a downturn in those sectors, while a mix of assets may offer more stability.
As always, it's worth remembering that markets move in cycles, and what goes up can come down. The ASX 200's run toward a record is a reminder of the market's resilience, but it also pays to stay alert to the risks that lie ahead.
