December / January market & economy update: what it means for your money

Hello and welcome to your December and January Market Update!

The last two months have been a mix of steady progress and a few bumps along the way. Markets have continued to digest the strong gains from 2025, while investors keep a close eye on interest rates, inflation, and global political developments. Overall, the key themes have remained the same: markets are moving forward, but not in a straight line.

December 2025

December was a more cautious month for sharemarkets. After a strong year overall, investors became a little more selective, and markets moved up and down as people reassessed expectations for 2026. There was still support from strong company earnings, particularly in the US, but there were also ongoing concerns that parts of the market, especially large technology and AI related companies, may have run ahead of themselves.

A major focus in December was interest rates. In Australia, the Reserve Bank held the cash rate steady, but the message was clear: inflation is improving, but the RBA is not ready to declare victory. This means rate cuts may still come, but likely later and more gradually than many had hoped earlier in the year.

Globally, markets were also watching the US closely. Share prices remain relatively high compared with company profits, which can lead to more volatility. Even so, most economies are still growing, unemployment remains low, and recession fears have eased.

What it meant for investors December was a reminder that even after a strong year, markets can pause or pull back. This is normal, and it reinforces the importance of staying diversified and focused on long term goals rather than short term noise.

January 2026

January started the year with a slightly different tone. Markets were again influenced by global headlines, including political uncertainty, trade tensions, and geopolitical issues. These events can create short term market swings, even when the underlying economic picture remains stable.

The outlook for 2026 suggests the year ahead could still deliver reasonable returns, but investors should expect some volatility along the way. After the strong performance of 2025, it would not be unusual to see at least one period where markets fall back before recovering.

Another theme emerging in January is the growing impact of politics on markets. Around the world, governments are becoming more unpredictable in areas like trade policy, regulation, and spending. This can add uncertainty for investors, but it does not change the fact that markets tend to reward patience over time.

In Australia, interest rates remain one of the biggest drivers. Recent data has shown unemployment falling and inflation rising again. These are both signs that price pressures may be picking up, and they increase the likelihood that the Reserve Bank may raise interest rates at its February meeting, which is what many banks and economists are now predicting.

What it meant for investors January reinforced that markets do not just move based on economics. They also react to headlines. The good news is that these periods are usually temporary, and long term investors are generally best served by staying consistent rather than reacting emotionally.

What to expect in the months ahead

• Shares - Markets may remain a little choppy early in 2026. High valuations, ongoing AI excitement, and uncertainty around interest rate timing could lead to short term ups and downs. But if profits continue to grow, shares can still rise over the longer term.

• Interest rates and the economy - Central banks appear to be at or near the end of the rate hiking cycle, but in Australia the next move may still be upward if inflation remains stubborn. Any decisions will depend heavily on upcoming data.

• Politics and global events - Geopolitical tensions and shifting trade policies may create occasional volatility. These issues tend to cause short term market reactions, but they rarely change long term investment outcomes on their own.

For most long term investors, the key message remains the same: do not stress about month to month market movements. Markets will always have periods of uncertainty, but staying diversified, sticking to your plan, and focusing on your long term goals is usually the best approach.

This update is general in nature and does not take your personal situation into account. If you would like to chat about how these trends relate to your own plan, I am always here to help.

If you have any questions or concerns, please reach out at any time.

Warmest regards Josh