Market Review & Outlook for 2026
December 2025 | 5-8min read
Key takeaways
- Trade policy dominated in early 2025, causing some market volatility, however deals on tariffs later calmed markets.
- Interest rates fell globally, supporting growth, however in Australia possible rate hikes are now on the horizon.
- Global economic growth beat expectations, driven by strong consumer spending and jobs.
- Technology, in particular AI, was a major market driver but ended the year on a more cautious note.
- Looking ahead to 2026, geopolitics, interest rates and technology remain key themes, with AI driven companies still strong but under more scrutiny.
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Trade policy the big story
Trade policy dominated headlines in 2025, creating uncertainty in global markets. Early in the year, the US introduced tariffs—taxes on imports—on major trading partners like Canada, Mexico, and China. Tariffs can slow growth and push up prices, and the fear that this might happen caused share markets to fall sharply. As negotiations continued, markets swung between declines and rebounds depending on whether continued conflict or compromise seemed more likely.
By mid-year, enough agreements had been reached to calm markets, but questions remained about enforcement and the impact on the global supply chain, the network that moves goods between countries. Ripple effects were felt in other markets, especially commodities and currencies. Traditionally, the US dollar has been considered a safe haven — a currency that holds its value in uncertain times. This year, however, the US dollar weakened as investors questioned its reliability. Many shifted to gold, a classic defensive investment, driving gold prices sharply higher.
Interest rates fell
Most major central banks—including the US Federal Reserve, European Central Bank, Bank of England, and the Reserve Bank of Australia—cut interest rates to support growth. Lower rates make borrowing cheaper, helping businesses expand, and this kept markets positive, despite trade and geopolitical uncertainty. Inflation also stayed low globally, allowing central banks to cut rates.
While short-term borrowing costs fell in line with rate cuts by central banks, long-term interest rates rose, due to concerns about high government debt in countries like the US, UK, and Japan. Australia ended the year differently: after three rate cuts in 2025, the Reserve Bank of Australia said that inflation remains stubbornly high, and hinted that further cuts are unlikely—indeed, rate hikes may now be on the horizon.
Global growth better than expected
The world economy performed better than many experts predicted, surprising markets. Strong consumer spending and solid job markets in major economies offset worries about tariffs and political uncertainty. In Australia, household demand improved, and the unemployment rate stayed low, supporting confidence despite inflation ups and downs. Global share markets continued to do well—especially in the US and Europe—where strong company profits added to the positive outlook.
It wasn’t all smooth sailing however. Concerns about government spending and rising debt levels (called fiscal risks) and ongoing trade uncertainty meant markets reacted quickly to policy changes and economic data.
Geopolitics and debt risks
Geopolitical tensions also shaped markets. Conflict in the Middle East pushed oil prices higher mid-year, while hopes of progress in Russia-Ukraine talks helped bring energy prices down. At the same time, concerns about government debt added uncertainty. In the US, big spending plans and a credit rating downgrade worried investors. In Japan, a major stimulus package drove borrowing costs to their highest levels in decades. Europe faced political debates that kept markets on edge, reminding us that fiscal and political risks remain key concerns for investors worldwide.
Technology dominated
Technology was a major driver of markets, fuelled by excitement around artificial intelligence (AI). Breakthroughs early in the year sent tech stocks soaring, but later, growing competition and talk of an “AI bubble” raised questions about whether share prices were too high. Even though tech companies reported strong profits, investors became cautious. Concerns grew that AI stocks were expensive, future earnings might fall short of lofty expectations, and tech firms were too dependent on each other for revenue. By December, we saw a shift by some investors to safer sectors like gold, and the year ended on a more cautious note for technology.
What this meant for your savings at Aware Super
Overall, it was a positive year, although returns fell slightly as we headed into December. Share markets overall delivered positive returns, which has benefitted investment options with higher allocations to shares, like our Future Saver High Growth option, where most of our members are invested. In the US strong performance has been driven by technology stocks. The Australian share market, while positive, underperformed the US market, due to fewer technology exposed companies, and a relatively lower change of interest rate cuts. Bond markets saw yields hold steady above the 4% plus level.
Outlook for 2026
There are 3 key themes we are watching given there potential to impact markets in 2026:
1. Geopolitics
2. Interest rates
3. The ongoing influence of digitisation
Politics – Calmer but still important
In the US, tariff disputes seem resolved, but mid-term elections and President Trump’s choice of a new Federal Reserve Chair could influence markets—especially if the new Chair favours keeping rates lower (a “dovish” stance) which may stoke inflation. In Australia, government spending is likely to continue, although private sector momentum is continuing to pick up. Globally, tensions linger: Russia-Ukraine ceasefire talks remain unresolved, incidents in the South China Sea persist, and Middle East risks haven’t disappeared. Markets are expecting some uncertainty, but sudden shocks—political or trade—could still cause volatility.
Interest Rates – US easing, Australia holding firm
The US is expected to keep cutting rates as inflation cools, and this should support growth and markets. Europe’s central bank is likely to hold steady at around 2%, while Australia faces a different story: the Reserve Bank has said that inflation is still high, meaning further cuts are now unlikely — rates may stay on hold or even rise.
Technology – AI boom with a side of caution
AI will continue to boost productivity and drive innovation, but investors are asking more questions: Will earnings meet expectations? Which startups will survive? Are tech valuations too high? Concerns about costs and profitability mean the tech boom is still strong, but with a dose of realism.
Our exposure to the technology sector has delivered strong returns to members to-date. Major technology stocks, including the Magnificent 7, have driven performance in our listed equities portfolio, while investments in private equity and infrastructure, for example in data centres, have also deliver for members.
We remain confident that companies embracing digital transformation are well-positioned for long-term growth. However, as with any investment, there are risks. Valuations of some large tech companies are elevated, and rapid AI adoption has also added uncertainty, but on the other hand, most spending to-date has been funded by company earnings, which supports its sustainability. We continue to monitor developments and watch very closely, maintaining a careful approach.
What this means for your savings
In the near term we anticipate that the investment landscape and markets will continue to be dominated by politics, interest rates, and technology. Returns from share markets over the past 2-3 years have been very strong - above long-term expectations. However, this level of performance is unlikely to be sustainable over the longer term, suggesting that returns may moderate going forward.
We invest for the long term and remain focused on the two key components of our investment approach which have consistently delivered for our members. The first is to invest in an actively managed diversified portfolio of investments – across different asset classes, sectors and geographical locations.
The second is to stick to our long-term strategy. We closely monitor market conditions and events to understand how they might impact future returns, but remain focused on long-term dynamics, like the energy transition, digitalisation and changing demographics, where we continue to see opportunities and which we expect to drive investment returns into the future.
