A new report from Global X has shed light on the tricky market conditions facing investors today. Right now, investors are navigating high valuations and soft expectations in the Australian market. 

Marc Jocum, Senior ETF Strategist at Global X ETFs Australia, reinforced that investors are facing a challenging environment. 

With Australian equities trading near record highs but earnings expectations continuing to soften, as well as economic headwinds, investors may face a more challenging environment. In this backdrop, covered call strategies can offer an alternative way to participate in Australian equities while generating an additional source of income and potentially improving the risk-adjusted profile of a portfolio.

Economic headwinds

According to the report, the August reporting season was one of the most volatile on record. Almost half of the S&P/ASX 200 Index (ASX: XJO) companies moved more than 5% on their earnings day. 

While the ASX 200 reached record highs, the underlying earnings picture was less encouraging. 

Company guidance generally disappointed relative to consensus. Meanwhile, forward earnings per share (EPS) growth expectations have continued to be revised lower.

Against this backdrop, a subdued housing market, persistent inflation, fiscal uncertainty and the prospect of further RBA rate hikes could create additional headwinds for Australian equities. We don’t believe this is a reason to sell Australia. Rather, it highlights the potential value of changing the way investors access the market.

The team at Global X emphasised that a covered call strategy can be a viable option in this economic environment. 

What is a covered call strategy?

Covered call writing is an investment strategy where investors buy a stock, or a group of stocks, and sell call options on them. 

Selling call options on stocks investors already own generates income, without facing riskier margin calls. 

However, it requires investors to forego upside – as a covered call portfolio can be “called away” when markets move higher.

According to Global X, covered call ETFs have become an established part of the income market overseas. Australia appears to be following a similar trajectory. 

There is now close to $5 billion invested in covered call strategies in Australia. This is almost 10 times the level of five years ago.

A covered call strategy provides exposure to a broad basket of shares while systematically selling call options to generate additional income. The trade-off is that some upside is forgone when markets rise strongly, but the option premiums received can provide an additional return stream and a degree of downside cushioning when markets are flat or weaker.

Global X S&P/ASX 200 Covered Call Complex ETF (ASX: AYLD)

For investors looking to utilise this strategy, this ASX ETF could be an option to consider. 

The fund holds the constituents of the ASX 200 Index while selling at-the-money call options on the same index on a quarterly basis. 

It seeks to generate higher income by owning the ASX 200 and systematically selling at-the-money covered call options over the index. 

The strategy currently has a 9.2% trailing 12-month yield (as of August 2026), with option premiums providing an additional source of income alongside dividends and franking credits from the underlying Australian equities.

Importantly, the strategy is not simply about maximising yield. The option overlay can also alter the risk and return characteristics of the underlying equity exposure, historically resulting in lower volatility and a smoother return profile. In 2026, AYLD has outperformed the broader Australian share market by more than 2% to date with less bumps along the way.

The post With high valuations and pesky headwinds, this covered call ASX ETF could be a timely investment appeared first on The Motley Fool Australia.

More reading

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• With oil back over $100 USD per barrel, this ASX ETF could be set to benefit
• The Fed just hiked rates for the first time in 3 years. What does it mean for ASX investors?
• This ASX biotech could jump more than 30%, one broker says
•  If I invest $10,000 in CBA shares, how much passive income will I receive in FY27?

Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

One of the most influential stories of 2026 has been surging oil prices.

Crude oil has gone past US$107 per barrel this week after Saudi Arabia closed its east-west oil pipeline following a drone attack. 

A new report from VanEck has reinforced that if oil stays near these levels, the consequences will reach much further than the energy sector.

What is going on with oil prices?

Oil prices are elevated in 2026 largely because the conflict in the Middle East has disrupted production and shipping. 

Tight inventories and limited spare capacity have amplified the impact of these disruptions. This is leaving the global market unusually sensitive to further supply shocks.

This has also influenced the RBA’s decision to hike interest rates throughout the year in an attempt to cool inflation. 

According to VanEck, if oil, which is already up more than 76% this year, remains at these levels and trimmed mean inflation stays above 3%, the case for further rate rises will be hard to dismiss. 

A prolonged oil shock could leave a second increase in play, adding pressure to household spending and growth-oriented equity valuations.

Higher oil prices can also support the earnings of energy producers and refiners, creating opportunities for portfolios positioned to benefit.

Where is the upside?

These economic factors have led to a surge in 2026 for ASX energy stocks.

In fact, the S&P/ASX 200 Energy Index (ASX: XEJ) is up 32% year to date. 

According to VanEck, while higher oil prices pose a challenge for the wider economy, investors are exposed to the other side of the story: favourable industry conditions can produce substantial returns.

From the beginning of 2026 to the end of August, global oil refiners returned around 50% and Australian oil refiner Ampol Ltd (ASX: ALD) gained close to 40%. 

International equities returned about 5% over the same period.

These gains do not mean every energy company will benefit to the same extent. However, they do show the size of the opportunity when stronger industry conditions flow through to company earnings.

An ASX ETF to consider

Higher oil prices remain a threat to inflation, interest rates, and household spending. 

But they could also create an earnings tailwind for selected Australian energy companies. 

One ASX ETF that could be a buy in this market is the VanEck Australian Resources ETF (ASX: MVR). 

It provides a strong resources and energy tilt. 

As of August 2026, oil and gas represented 19.2% of the fund. This is much higher compared with 11.4% of the S&P/ASX 200 Resources Index (ASX: XJR).

The structure of the fund also caps each company at 8% at rebalance, preventing one company, such as BHP Group Ltd (ASX: BHP), from dominating the portfolio. 

As a result of the cap, the weight released from BHP is spread across energy producers, gold miners, critical minerals companies, and other parts of the resources sector.

That gives investors more exposure to companies that may benefit from higher oil prices without making the entire allocation dependent on one commodity or company.

Foolish takeaway

Surging oil prices are putting upward pressure on inflation and interest rates, but they are also boosting energy-sector earnings. 

This potentially benefits resource-focused investments such as the VanEck Australian Resources ETF.

The post With oil back over $100 USD per barrel, this ASX ETF could be set to benefit appeared first on The Motley Fool Australia.

More reading

• Buy, hold, sell: AGL Energy, Telstra, Zip shares
• With high valuations and pesky headwinds, this covered call ASX ETF could be a timely investment
• The Fed just hiked rates for the first time in 3 years. What does it mean for ASX investors?
• This ASX biotech could jump more than 30%, one broker says
•  If I invest $10,000 in CBA shares, how much passive income will I receive in FY27?

Motley Fool contributor Aaron Bell has positions in BHP Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Aussie investors have another reason to keep a close eye on overseas markets on Thursday.

The US Federal Reserve has raised interest rates for the first time since July 2023, lifting its benchmark rate by 25 basis points to between 3.75% and 4%.

The hike itself wasn’t a huge surprise, but Wall Street didn’t exactly love what came next.

US shares started slipping as Fed chair Kevin Warsh spoke after the decision.

By the close, the Dow Jones Industrial Average Index (DJX: .DJI) had fallen 631 points, or 1.21%, while the S&P 500 Index (SP: .INX) dropped 0.45%. The Nasdaq Composite Index (NASDAQ: .IXIC) finished almost flat, down 0.01%.

And now some of that weakness looks set to follow us home.

The S&P/ASX 200 Index (ASX: XJO) futures are currently pointing around 0.7% lower ahead of today’s open.

Why did the Fed raise rates?

The Fed didn’t have much disagreement on this one, with all 12 voting members backing the increase.

According to the Fed, the US economy is still moving along at a “solid pace”, with domestic spending holding up, productivity growth remaining strong and unemployment little changed.

Inflation, though, is still sitting above the Fed’s 2% target.

Warsh made that pretty clear after the decision, saying inflation was still too high and had stayed there for too long.

That sent bond yields higher.

The US 10-year Treasury yield moved back above 5%, finishing around that level for the first time since 2007.

Why did Wall Street fall?

Once the first hike was out of the way, attention quickly moved to what the Fed might do next.

The Fed’s updated projections put the median federal funds rate at 4.1% by the end of 2026.

Reuters reported that 16 of 18 policymakers expect at least one more increase before the year is out.

The US dollar also strengthened after the decision, while the Australian dollar slipped below US 71 cents against the greenback overnight.

What does this mean for the ASX?

For me, today’s open probably isn’t the main thing to focus on.

A weaker start would be pretty understandable after Wall Street’s reaction overnight.

What I’d rather watch is whether the ASX can settle down once trading gets underway, or whether the selling keeps building through the session.

Another US rate hike is still possible before the end of the year, so the Fed could remain a factor for ASX investors over the coming months.

The post The Fed just hiked rates for the first time in 3 years. What does it mean for ASX investors? appeared first on The Motley Fool Australia.

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• Want the age pension? Here’s the new asset limit you can’t exceed
• Here are the top 10 ASX 200 shares today
• The ASX 200 is finally rising. Is the sell-off running out of steam?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.