Australian stock markets continued their upward trajectory for the third consecutive session on Monday, December 22, closing at their highest level in over a month. The rally, driven by robust performances in the mining and banking sectors, signals the arrival of the traditional year-end 'Santa Claus' rally in equity markets.
Market Performance and Key Drivers
The benchmark S&P/ASX 200 index closed 0.9% higher at 8,699.9 points, marking its strongest finish since November 13. Market analyst Tony Sycamore from IG Australia noted that the gains indicate the long-awaited Santa Claus rally has finally taken hold. He suggested that if the index's December low of 8547.1 holds, the rally could potentially extend towards the 8850 level in the final days of the year, aided by compressed volatility and thin trading volumes.
Trading activity is expected to remain subdued as markets head into the holiday season, with closures scheduled for Thursday and Friday. The minutes from the Reserve Bank of Australia's final policy meeting of the year, due on Tuesday, are anticipated to be one of the few remaining catalysts for movement.
Sectoral Surge: Miners and Banks Lead Charge
The mining sector was a standout performer, hitting a record high. This surge was fuelled by stronger prices for key commodities like iron ore and copper. Heavyweights Rio Tinto, BHP, and Fortescue saw gains ranging between 1% and 1.7%.
In a parallel rally, gold stocks jumped 4.1%, tracking bullion to a fresh peak. This rise is attributed to increasing market bets on interest rate cuts in the United States and a concurrent weakening of the US dollar.
The financial sector also contributed to the market's strength, gaining 0.3%. After a challenging November that saw a 7.4% drop due to valuation and earnings concerns, the sector has rebounded, posting a gain of nearly 3% in December. Major banks like Commonwealth Bank of Australia (up 0.3%) and ANZ (up 0.7%) advanced.
Marc Jocum, Investment Strategy and Research Manager at Global X ETFs, offered an optimistic outlook for banks heading into 2026. He pointed out that as markets adjust to the expectation of higher-for-longer interest rates, deposit repricing and stabilising net interest margins are likely to support earnings, even amidst intense competition.
Interest Rate Expectations and Regional Impact
The rally occurs against a backdrop of shifting expectations for monetary policy. Investors have increased their bets on further tightening by the Reserve Bank of Australia following hawkish signals and resilient economic data. Markets are now fully pricing in a quarter-point rate hike by June 2026, with roughly a 25% probability of a move as early as February.
The positive, risk-on sentiment spilled over to New Zealand as well. The country's benchmark S&P/NZX 50 index closed 1.3% higher at 13,508.30 points, reflecting a broad regional uplift in investor confidence.
In summary, the Australian equity market's strong finish, led by resource and financial stocks, provides a cheerful note for investors as the year draws to a close, with all eyes now on the sustainability of this Santa-led rally.
