General Market Overview
December has delivered an unusually quiet end to the year after a messy 12 months of twists and turns.
After a year that tested patience, discipline, and conviction, markets chose to slow the pace rather than sprint into year-end. Following October’s highs and November’s rebound, December was about digestion. Profit-taking crept in.
Risk was reassessed. Expectations for rates, inflation, and growth were reset heading into 2026.
No panic. Just calm reflection and repositioning.
Australian Market
The ASX 200 spent December sideways. Gains were met with selling. Rallies faded quickly.
Pullbacks found buyers just as fast.
At its mid-month peak, the index briefly touched 8,701.8 before stalling. Compared to November’s weakness, that alone tells you something.
The market tried to move higher. It just didn’t have the conviction yet.
It has been a stock-picker’s market.
Index momentum mattered less than company-specific news, earnings quality, and balance sheet strength. Investors weren’t throwing money at themes. They were choosing names and newsflow.
That’s a healthy sign.
Late-cycle bull markets don’t die from consolidation. They die from excess, leverage, and blind
Source: TradingView
Inflation and Interest Rates
Coming into the new year the biggest question on investor’s minds is what will happen with interest rates in 2026.
Bond markets are scheduling a rate hike or two down under. The sharp change in sentiment was driven by a surprisingly high inflation rate and employment data sitting bang on the money.
The following RBA Rate Tracker based on the forward pricing curve of 30-day bills points to the first cut almost fully priced by July, and 43 basis points of hikes expected by May 2027.
Source: TradingView
This is all of course highly dependent on the future pace of inflation.
The RBA has dual targets of price stability and full employment. Unemployment is dead on target at 4.4%, making it a non-issue, at least until the data shifts.
The following long-term chart from the RBA shows inflation smashing through the top of the 2- 3% inflation target.
Core inflation at 3.6% is enough to get the central bank talking the market towards the next hike. If this move continues and we start to see inflation start with a four, the pressure is really on for a hike.
There’s a strong case to be made that the RBA went too hard on cuts, and is now paying the price. Peer pressure is real.
While rising interest rates are not the end of the world, it does threaten to take some of the steam out of this lovely bull market. Any signs that inflation can’t be reined in will certainly cause some havoc.
Source: TradingView
Quality Brands are on Sale
It’s been a tough 12-months for some of the ASX’s former darlings.
Names that could do no wrong in 2023–2024 suddenly found themselves on the wrong side of re-rating as reality checked rosy growth assumptions.
This isn’t a case of bad businesses so much as investors waking up to the fact that 20%+ revenue growth can’t continue forever. When the music stops, high multiples contract fast.
CSL (ASX:CSL) now changes hands at about ~19X earnings and throws off a respectable 2.59 % dividend yield, a far cry from the high valuations it commanded two years ago.
Telix (ASX:TLX) still sports an extreme trailing multiple of roughly 258X earnings. However, it has one of the most impressive clinical pipelines around, including major near-term catalysts.
We don’t expect a dividend in the next few years as the company reinvests for growth.
REA Group (ASX:REA) has fallen from grace but still trades at a high 36X trailing earnings and a modest 1.4 % yield. The company is, however, hitting strong operating leverage, and we’re seeing revenue gains translate strongly into profitability.
WiseTech Global is on 75.59× earnings and yields just 0.33 %. Xero is in the same boat: a 75.48× P/E with no yield. Both have solid leadership positions in their fields and plenty of room to continue growing. The big question is will they co-opt gains in AI to stay ahead of the race, or will someone use it to knock them off their perches. In other words, are they Samsung or Nokia?
Domino’s Pizza Enterprises (ASX:DMP) has reported a loss, so price to earnings is not a useful metric. However, we’re seeing a price to sales ratio of just 0.9X, which is starting to look far too low for such a high quality and recognised brand. There’s still plenty of work to be done, but Starbucks has already written the playbook on how to get up and dust yourself off after being thrown into the dust by whole countries – Ouch. So, we know it can be done.
Contrarian investing is all about buying quality when others are too scared or too bored to care, but that doesn’t mean jumping in blindly.
The recent drawdowns have created an opportunity to pick up these household-name ASX stocks at steep discounts. Established growth stock pullbacks can be lucrative, but only for investors willing to wait through further volatility and accept that narrative turnaround can take longer than you think.
Patience and valuation discipline are key.
Source: TradingView
2026 Outlook for the ASX – Key Themes & Risks
Expect repositioning flows to continue into the start of 2026, at least until the market gets clarity on the forward path of interest rates.
High growth and pre-revenue stocks could remain heavy.
Defensive stocks that do well in inflationary environments could see demand. Think names like Woolworths (ASX:WOW), Transurban (ASX:TCL) and REITs with strong interest rate hedges in place like Waypoint REIT (ASX:WPR).
Interest rate expectations remain the dominant driver. Any shift in guidance from the RBA or the Fed will ripple quickly through equities, currencies, and commodities.
Commodities will likely continue to be volatile, with battery and tech metals like lithium, rare earths and antimony continuing to attract attention. Copper, gold and silver show no signs of slowing.
As always, there are plenty of strong thematics likely to deliver outsized returns in 2026. Watch for signs of genuine fundamental progress and increasing allocations of capital to:
- Company specialisation and co-integration (AI a bonus) – think stocks like Xero (ASX:XRO), Stakk (ASX:SKK), Readytech (ASX:RDY), Integrated Research (ASX:IRI) and OpenLearning (ASX:OLL)
- Biotech breakthroughs – watch Lumos Diagnostics (ASX:LDX), Recce Pharmaceuticals (ASX:RCE), Imugene (ASX:IMU), Epiminder (ASX:EPI) and Actinogen Medical (ASX:ACW)
- Commodity Boom – check out Ballard Mining (ASX:BM1), Australian Strategic Materials (ASX:ASM), West Wits Mining (ASX:WWI), Galan Lithium
Conclusion
A quick scan of the macro environment reveals very few shadows we can jump at in 2026 so far. The big one is interest rate hikes, but we already know they’re (likely) coming.
The market has begun to reposition itself.
Of course, black swan events have a nasty habit of arriving unannounced. Pandemics, global wars, major terrorist attacks happen all too frequently. But, we can’t predict them.
US debt levels remain a giant can of concern to continue getting kicked down the road. But that’s a decades-old story. The Japanese carry trade unwind is also a vague case for concern, although we’re not seeing any fireworks yet despite falling Japanese bonds (JGB’s).
As always, don’t forget to check out our stock recommendations, CEO interviews and other articles at https://www.themarketsiq.com/.
NOTE: Due to scheduling restraints, this month’s market update is being released a bit earlier,
with figures taken during the week ending Friday 19th December 2025..
Wishing you a happy and safe festive season and happy investing from the Vitti Capital
family.
Disclaimer
This information is of a general nature only and has been prepared without taking into account
your objectives, financial situation or needs. You should consider the appropriateness of the
information, having regard to your circumstances, before making any investment decisions.
This communication is not personal financial advice. Vitti Capital is a Corporate Authorised
Representative of Point Capital Group Pty Ltd (AFSL 518031).
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