ASX Market Update 17th December 2025

Global Market Commentary

Chart: S&P 500 as of 16/12/25

As the end of the year draws near the markets remain placid with most of the focus centred around the AI trade and the first real release of tier 1 economic data we have had in some time. November NFP data was front of everyone’s minds last night and it came in mixed. For November the US added 64k jobs which was higher than the 50k expected, but the unemployment rate climbed to 4.6% from 4.4% on the back of a higher-than-expected participation rate. There was something there for both bulls and bears in what I feel was a goldilocks release. It wasn’t strong enough to eliminate rate cut hopes in 2026 but wasn’t soft enough to cause concerns for the economy.

Oracle (ORCL) was in the headlines again as it was revealed they have $248bill in additional lease commitments between Q3 26 and 2028. Again, raising the question of how this is funded and debt being part of the conversation. In fact, ORCL will move from $6.3bill in total capex spend in 2025 to $20bill+ in 1H26 alone. This gets the market nervous as it’s the first real use of debt in the sector since this all began in late 2022. However, it does point out the incredible demand for AI cloud computing services and they will obviously be receiving revenue once these services are up and running. We do know those margins are thinner than the likes of MSFT & GOOG receive for theirs and that there is concentration risk as only a hand full of clients make up most of that additional lease demand. Thus comes the delicate position of balancing expansion, funding and sufficient revenue in the next two years for ORCL in what will be an ongoing concern for markets.

Market Outlook 2026

Chart: S&P/ASX 200 on 17/12/25

Given that this will be my last update for the year and that we are mere days from 2026 I thought I’d give you my thoughts I on some of the key themes I’d expect to play out next year + risks we could face. In 2025 the markets more resembled the famous story ‘A Hobbits Tale: There and back again’ as we faced our journey to the lonely mountain and Smaug (tariffs) and came out the other side better for it. For anyone who is familiar with the hobbit story the lonely mountain is where the dwarves stockpiled their riches which was ultimately stolen by the dragon Smaug, which I suppose is represented by tariffs in our case, until they were ultimately won back. Hence the market’s wealth and ability grow was kept back by some savage tariffs and what caused a sharp 20% correction. In the end the good guys won out, in our case AI & earnings, and we had a decent return for the year. I can see the parallels there but then again; I am a big nerd.

Thus far the S&P500 has return 15% for 2025, which sounds healthy, but when you consider the average return for a year in which the SPX is positive is +19% it may have underperformed. The Nasdaq has returned a solid 19.5% for the year as well. For local markets we are up only 5% for the year but add in another 3.5% of yield and we are bang on average for total returns for the last 40-50 years. Of course, the XJO still sits 5% below all time highs whilst the SPX is only 1.5% from theirs. The outperformance mostly coming from the US overweight exposure to tech and the AI trade. In the end 2025 was a decent year, but what do I think will be some of themes for 2026?

Less Policy, more Macro- What I mean by this is markets will be driven by more macro and economic factors rather than government policy. In 2025 policy dominated headlines and market momentum with tariffs, the big, beautiful bill and the shutdown all having a major impact on the markets. I believe now Trump has got most of his major policy done the markets will be able to focus more on the actual performance of the US economy and earnings. We will have the mid-term elections to deal with in November, but outside of that Trump’s policies will be much more focused and smaller in scale.

Resources Outperformance- I believe we start to see some of those commodity price gains filter through to a better performance in the resources sector and for it to be a leading sector in 2026. In particular I feel like we need to focus on Copper, Alumina/Aluminium, Tin, Uranium, REE, Gold/Silver & Lithium. Copper & Lithium could have very big years if bullish scenarios start to play out. UBS has forecast we could see up to a 1.1mt deficit in copper (A1M, DVP, FFM, BHP) through 2026 due to mine shutdowns and production downgrades add in the increased demand we are seeing from AI, data centres and the electrification of everything we could easily see copper at $7lb in 2026. Lithium (PLS, WR1, LTR, SGML.US, LAR.US) has risen from the ashes in the last few months and for reasons I spoke about in July this year. BESS demand is hot and up 70% this year. Morgan Stanley forecasts for demand to grow 50% next year as well and the need for lithium supply to grow to 2mt LCE within the next two years. EV demand is still driving growth with Chinese EV sales +29% this year but they are moderating as the reach 60% of new sales. But of course, the rest of the world needs to catch up here so there is another leg to this story.

AI Dominates- I believe the AI story still unfolds in a positive way but with higher expectations and less concessions given as the market will expect to see some positive momentum from AI in earnings. GOOG will be the top tier AI stock to hold but exposure will continue to broaden into more than the household names. Autonomy and Robotics will be the key sub-sector themes here.

Small Caps to Outperform- Finally 2026 will be the year for small caps as the rate cycle moves towards stability with only 1-2 cuts in the US next year but for the most part they will be on hold. This obviously benefits small caps as debt is cheaper and this easier for them to grow earnings but the stability also helps build confidence and for them to take that next step forward in capex spending.

Australian Tech to Recover- It’s been a poor end to the year for Australian Tech with the XTX down 24% from recent highs based on mostly a repricing of risk. I believe confidence returns to the sector with many household names such as TNE, XRO, REA, RMD, WTC, PME etc all outperforming again. These names have all got high quality earnings and are leaders in their space so I wouldn’t expect a drawdown in them to last much longer.

Aussie Consumer Spends up Big- Another topic I have covered lately is the strength of the Aussie consumer. Household consumption is accelerating on the back of higher wages, lower rates, high savings and renewed confidence. I would expect that to continue into 2026 in a stable economic environment. This favours our discretionary retail stocks such as JBH WES FLT NCK ARB etc. This means we could se earnings surprise to the upside within this sector.

US economy to Boom- I would expect the US economy to really take off in 2026 on the back of multiple factors such as increased productivity from AI, increased housing construction, lower rates, deregulation of the financial system, potential tariff stimulus cheques and tax cuts. I have heard from two different accountants in the US that due to tax changes in the big, beautiful bill and the fact that they are retrospective for 2025 many households will receive a much larger tax return than usual in 2026. This will act as stimulus cheque in itself and will go back into the economy. Not to mention up to $35trill in US housing equity will start to be released via renovations, upgrades and potential for further investment. I’m not sure the US economy has ever looked this bullish on a 3-year horizon.

Risks

As much as it is fun to glorify the potential upside in markets we must also acknowledge there will be headwinds along the way. The market has a way of climbing that wall of worry but sometimes that wall causes us to stumble along the way. Below are some potential risks I can see unfolding in 2026 if the conditions are ripe.

AI Bust- Whilst I think it’s too early for the AI sector to bust this will remain a risk that hovers over the market for the entire cycle. Like I said before the market will want more proof that earnings are being positively impacted by AI and we start seeing a decent ROI. I feel this is not going to be able to be proven for a few years yet so maybe we start to see something unravel at OpenAI, a bad funding round or devaluation. Or maybe we start to see some of that backlog in orders shrink causing concern. One thing is for sure I feel we get a period of bearishness that ultimately is proved wrong but provides a decent correction in household AI names of 20% or more.

Japan- I wrote about this last week and feel it’s a material risk moving into 2026. Yields are rising in Japan and rates will go up. This means its likely the Yen rises vs USD and the carry trade reverses. How that is handled by the BOJ may determine if we have a sharp correction or not. I would put this as my number one risk in terms of chances of happening but also the one I’m least worried about. Like I said last time it’s a fine needle to thread for the BOJ to remain hawkish but not too hawkish so much so as cause panic in financial markets.

Inflation Returning- I can see a case where we start to see inflation increasing again in 2H 26. If the US economy is to run hot and the Labor force is shrinking due to net immigration being zero then this could force wages up, demand increase above capacity and prices start to surge. The narrative would then shift from cuts/hold in rates to a rise and markets would adjust accordingly.

Mid-Term Elections

This is not really a risk but more a seasonal pattern that occurs in markets during mid-term election years. Since 1931, in a mid-term election year, the markets tend to underperform producing a +6% return vs +9% usually. This is because the markets tend to trade sideways until late October and take off after we have some definitive results in the elections. The markets hate uncertainty and I guess this is why we consistently see this pattern. Of the 22 mid-term election years only three times has the sitting presidents party not lost seats in both house and senate and by an average of 28 and four respectively. These years are also more volatile with a median standard deviation of 16% vs 13% in other years. However, the 12 months after mid-term elections are generally very bullish with an average return of 15% vs 7% in other years, which helps stoke expectations for 2027. This is why Trump went so hard and so early with a lot of his policy because its unlikely he will retain power in both the house and senate after November this year.

In conclusion

Overall, I would expect 2026 to be another solid year for markets, but maybe one that underwhelms due to those seasonal mid-term election factors. However, if there is ever going to be a year where markets outperform this narrative it could be 2026. Current forecast EPS growth CY26 for the S&P500 is +14.5% and +7% revenue growth. This would make it three years straight of double-digit EPS growth, which really is unheard of. Again, valuations are stretched but backed up by earnings growth and record high earnings margins. As for Australia earnings expectations for FY25/26 are expected to be around +5% after a couple of negative years. I believe this has potential upside if commodity prices continue to firm up and the Australian consumer remains confident which would see upside surprises in resources and consumer discretionary sector earnings. Any global market corrections should be well supported and used as an opportunity to buy quality companies.  

Well, that wraps it up for another year. As always, it’s been a pleasure getting to know new faces who have come on board this year and the continued strong relationships I have with existing clients. I would like to offer my sincere thanks to you for the support you have given me in 2025 and know that without you all I couldn’t participate in two passions of mine. Financial markets and being able to spend maximum time with my family watching my beautiful children grow up. It truly is a blessing as so many parents miss out on so much. I will never take it for granted. Have a very Merry Christmas and Happy New Year. Please stay safe and I look forward to catching up in the new year. Go Crows!

heath@hlminvestments.com.au

0413 799 315

Important Notice

Heath Moss is an Authorised Representative (AR 278605) of PGW Financial Services Pty Ltd AFSL 384713. Any advice in this article should be considered General Advice only and does not consider your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.