Markets Unwrapped: December 2025
December continued much of the themes from recent months. Despite a solid performance to begin the month in the US off the back of the Federal Reserve reducing rates, the volatility associated with artificial intelligence and weakening economies, saw US equities snap a seven-month rally, returning a slight negative. The rotation into companies with greater valuation then US counterparts, saw other global equities perform well.
After a poor November, Australian equities rebounded through December as the sell-off of the banks slowed and resource and commodity prices continued to hold steady/increase, helping the smaller Australian companies outperform and valuations looked slightly more attractive after the November performance.
Despite inflation data moving back to consensus from the shock increase the prior month, continued strong employment saw the RBA indicate a stop to the current rate cutting cycle, with the December data likely to confirm whether there will be short-term rate increases or a pause. The Federal Reserve continues to reduce rates, albeit are taking a more conservative approach to what Trump is requesting. Bond yields were mixed as the announcement from the RBA saw investors begin moving into domestic government bonds. As central banks for other developed countries continue to decrease rates, this divergence looks to continue benefitting Australian bonds and currency as the greater level of income becomes more attractive compared to the US.
Similar to previous months, there continues to be no clear path forward and short-term volatility will likely continue based on short-term economic news. This will likely continue to be the case until greater certainty in economic conditions.
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