By Jonathan Barrett
Publication Date: 2025-12-31 14:00:00
1. Sticky inflation
While Australian shares posted positive returns in 2025, the benchmark S&P/ASX 200 fell more than 4% from its record high on October 21 to close the year at 8714.3 points.
The selloff coincided with a changing inflation outlook, with traders swapping forecasts of further rate cuts for likely rate hikes. Interest rate hikes are generally seen as a drag on stocks because they make financing more expensive for companies and weigh on consumer spending.
Two of the big four banks expect a rate hike at the Reserve Bank of Australia’s first meeting of the year in early February, while none forecast further rate cuts.
The interest rate outlook partly explains the recent divergence in performance between the ASX and Wall Street, with the US market posting strong double-digit returns, supported by a rate cut in December and the possibility of further fallout.
Wall Street’s strong performance was also fueled by an AI powered by the country’s major companies…
