By Grady Wulff, Senior Market Analyst, Tandem Securities
Is the Santa rally set to continue?
It feels like we have ridden the Santa rally since December 2024 with the ASX and global markets resetting record highs throughout CY25, so, is there any steam left in the tank for the Santa rally to extend into Christmas this year? In this momentum market there are certainty opportunities and tailwinds for the rally to close out a very strong year for equity markets but let’s dive into the possibilities and what we have seen in CY25 so far.
Gold’s stellar run
Gold’s stellar run through 2025 saw the metal surge past US$4,380 per ounce, cementing its status as one of the year’s standout performers before easing slightly on profit-taking and softer near-term tailwinds. The rally was driven by unprecedented central bank demand as nations diversified away from the U.S. dollar, reinforcing gold’s appeal as a neutral store of value amid global geopolitical tensions and waning trust in fiat currencies.
Momentum was further fuelled by expectations of continued U.S. rate cuts following the Federal Reserve’s September pivot, as well as mounting macroeconomic uncertainty and stretched equity valuations that pushed investors toward safe-haven assets. While some consolidation emerged among leading producers like Northern Star (ASX:NST), Newmont Corporation (ASX:NEM), and Ramelius Resources (ASX:RMS) as investors locked in gains, the broader fundamentals remain robust. With miners closing hedge books and macro conditions still supportive, gold’s upward momentum looks poised to extend into 2026.
AI thematic drives tech gains
The AI thematic continued to propel the magnificent 7 and broader sector gains throughout CY25 despite valuations soaring and sporadic pullbacks as investors questions the growth potential of the tech revolution. Datacentres were all the rage for investors looking to gain diversified exposure to the AI movement with ASX-listed companies like Goodman Group (ASX:GMG) jumping 20% in the last 6-months.
Nvidia’s (NASDAQ: NVDA) latest results outlined a 114% increase in sales over FY25 to US$130.5bn with momentum expected to continue into FY26. The broadening of listed exposure for investors into the AI-thematic was an interesting story in CY25 as we saw commodities tied to AI hardware like copper and medical applications of AI, enhancing consumer demand for the latest and greatest technology advancements. The use of AI really is everywhere and in every part of our daily lives, which drives further tailwinds for the sector, expanded applications and growth potential heading into CY26.
When identifying the opportunities for AI in 2026, it is important to analyse earnings growth guidance ranges to determine if sales momentum is easing or expanding, contract values, and annual recurring revenue to ensure financial stability bolsters the company’s growth outlook. Spend on AI vs efficiencies gained from the use of AI is also an important metric to consider as a high spend to low return signals misused funds, while a lower spend on AI that achieves higher cost reductions and efficiencies signals strategic use of the technological revolution.
Defence stocks surge
Defence stocks emerged as the theme of CY25, similar in nature to the foundations of the AI boom that began a few years ago, as governments around the world ramped up strategic defence spend, and geopolitical tensions escalated throughout the last year. The combination of new software and hardware developments emerging in the market sent investors scrambling to gain exposure to the producers of such tech like unmanned aerial vehicle (UAV), submarines and counter-drone laser weapons.
Such tailwinds and rapid expansion of spend in the sector fuelled stocks like DroneShield (ASX:DRO), Electro Optic Systems (ASX:EOS) and Elsight (ASX:ELS) up over 500%, over 350% and over 250% respectively over CY25. Valuations may be questionable, however, with further government spend expected in the space over CY26 and growing revenue pipelines, we may see such stocks continue to significantly outperform over the coming years.
Niche retailers outperform
Niche retailers have been a standout area of outperformance on the ASX in CY25, surprising many investors as consumer spending proved more resilient than anticipated. Companies such as JB Hi-Fi (ASX:JBH), Baby Bunting (ASX:BBN), and Nick Scali (ASX:NCK) have benefited from disciplined cost control, successful inventory sell-downs, and improved operational efficiency, which have driven meaningful margin appreciation despite a still-cautious consumer environment.
These retailers’ strong brand positioning and targeted market segments have allowed them to maintain pricing power and customer loyalty, even as broader retail conditions softened. Looking ahead, the prospect of rate cuts and easing financial pressures on households is expected to further support discretionary spending, positioning these niche retail operators well for continued earnings momentum into 2026.
Domestic equities outlook for CY26
The momentum building on the S&P/ASX 200 heading into 2026 feels more sustainable than the fleeting bursts we’ve seen in past years. Inflation is gradually easing, the RBA is widely expected to continue cutting rates into early 2026, and household balance sheets remain surprisingly resilient. Australia’s economic setup is also looking sturdier with inflation trending back toward target, private-sector activity is picking up, and trade exposure to U.S. tariffs remaining minimal.
Add in renewed housing activity, infrastructure and energy transition projects, and it’s clear the domestic growth story has more depth this time around which drives an optimistic outlook for equities into CY26.
Key market tailwinds
As monetary conditions loosen, market confidence is gradually returning. Lower rates may ease funding pressures, boost earnings, and reignite appetite for risk and growth assets setting the stage for a strong late-year rally.
- Rate-sensitive sectors like housing and consumer discretionary may benefit early.
- Commodities tied to the green transition, copper, lithium, and battery metals remain strong longer-term plays.
- Defensive domestic earners, in consumer staples, utilities, and gold miners continue providing stable, safe-haven returns.
Risks to consider
Of course, no rally comes without its risks. A flare-up in global trade tensions or U.S. fiscal shocks could quickly dampen sentiment, and any surprise resilience in inflation could delay the RBA’s cutting cycle; a key assumption underpinning this market optimism. Still, the ingredients for a Santa Rally are lining up: easing inflation, stable employment/low unemployment, improving growth signals and a supportive policy and regulatory backdrop. As we head into year-end, a balanced portfolio that is tilted toward rate beneficiaries and structural growth themes, yet anchored in quality defensives, could offer the best way to ride the rally while keeping one foot on solid ground.
Tandem Securities, Tandem Clearing are registered business names of Third Party Platform Pty Ltd (TPP), ABN 74 121 227 905, Australian Financial Services License (AFSL) 314341. TPP is a Market Participant of ASX Limited, Trading Participant of Cboe Australia Pty Ltd, Settlement Participant of ASX Settlement Pty Ltd and a Clearing Participant of ASX Clear Pty Ltd. Tandem Capital is a registered business name of Bell Potter Capital Limited (BPC), ABN 54 085 797 735, AFSL No. 360457. BPC is licensed to offer Margin Lending Services. Tandem Securities does not provide investment advice, information provided in this document has been prepared without consideration of any specific clients financial situation, particular needs and investment objectives. It is general information only and does not constitute investment or other advice.
