Market Insights
Australian equity markets finished the year on a stronger note, with the traditional “Santa rally” delivering a +1.3% gain for the S&P/ASX 200 in December, taking full-year returns to approximately +10%. While headline performance was constructive, market dynamics beneath the surface remained fragmented, continuing the theme rotations that characterised much of 2025.
Macroeconomic data releases were lighter through the month, but commentary from the RBA reinforced a more cautious policy stance. The Bank left the cash rate unchanged at 3.60%, citing a still-tight labour market and stronger-than-expected business investment. Importantly, the RBA pushed back against expectations of near-term rate cuts, leaving investors with a more asymmetric outlook in which policy easing appears distant, and the risk of higher-for-longer settings remains possible.
Sector performance told a clear story. Materials was the standout in December and for the year as a whole, benefiting from tailwinds across commodities. Gold prices surged above US$4,300/oz, copper rose sharply, and lithium prices continued their recovery from mid-year lows. These moves drove strong relative performance across gold producers, base metals, and select bulk commodity exposures.
In contrast, Technology and Healthcare were among the weakest sectors, reflecting a continued de-rating of higher-multiple growth stocks amid a less supportive interest-rate backdrop and a stronger Australian dollar. The Quality factor, which dominated returns in earlier phases of the cycle, remained under pressure as momentum and value continued to lead.
Encouragingly, small and mid-cap equities showed greater resilience, supported by, in our opinion, more attractive starting valuations, stock-specific catalysts, and ongoing corporate activity. The dispersion between winners and losers remained wide, reinforcing the importance of active management and bottom-up research.
Moving to global markets, December was more balanced. U.S. equity markets advanced modestly, supported by cooling inflation data and expectations for further Federal Reserve rate cuts following the December easing. In contrast to Australia, the U.S. policy trajectory appears more clearly biased toward gradual easing, which has supported equity multiples and earnings sentiment.
Europe remained steady but subdued, while Japan continued to stand out as a relative outperformer, driven by earnings momentum and ongoing governance reform. China’s market was mixed, with targeted stimulus measures providing some support, but property-sector weakness continuing to weigh on confidence.
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