ASX 200 market outlook 2026

2025 performance review

ASX 200 overview

With just four weeks left before year-end, the Australia 200 (ASX 200) is trading at 8600, reflecting a 5.39% increase for the calendar year to date (CYTD) and positioning it for a third consecutive year of gains.

The ASX 200 Accumulated Index, which accounts for all cash dividends reinvested on the ex-dividend date, stands at 115,933 – an increase of 8.73% CYTD. This marks the Accumulated Index's sixth year of positive returns out of the last seven.

While this is positive news, the ASX 200 has lagged many of its global peers. This underperformance can be attributed to the ASX 200’s narrow weighting in technology stocks and the impact of resurgent inflation, which has curtailed the Reserve Bank of Australia’s (RBA) rate-cutting cycle, leaving monetary policy settings in a restrictive stance.

Additionally, tariffs and trade wars have impacted China – Australia’s largest trading partner and buyer of its commodities – contributing to a subdued nominal gross domestic product (GDP) growth rate of 4% amid lingering deflation.

Lastly, the local index is trading at a lofty premium compared to its historical valuations, with the ASX 200's 12-month forward price-to-earnings (P/E) ratio now at 18.1x, above the long-term average of 14.8x.

Sector analysis

The ASX 200 materials sector (+24.49%), industrials (+11.40%) and utilities (+9.23%) sectors have been the strongest-performing ASX 200 sectors in 2025.

The health care (-20.44%) and information technology (IT) (-15.44%) sectors have been the worst performing, with the latter falling 11.65% in November. These are the only two sectors currently trading lower in 2025.

The heavyweight financials sector, which accounts for 32.9% of the index, is up just 3.70% CYTD after losing a significant 7.42% in November.

The ASX 200 materials sector appears a stronger contender to outperform in 2026, thanks to its attractive valuations, favourable commodity price signals, China’s exit from deflation and its anti-involution measures.

ASX 200 sector breakdown

2026 outlook

Macro outlook

• Gross domestic product

In the June quarter (Q2) of 2025, Australian GDP increased by 0.6%, resulting in an annual rate of 1.8%. The number was stronger than expected, driven by a sharp rebound in household consumption due to Reserve Bank of Australia (RBA) rate cuts, increasing real incomes and lower personal tax rates. While this trend is expected to continue into 2026, the RBA warns that GDP growth in Australia’s major trading partners is expected to slow, which will lead to Australian GDP stabilising around 2% year-on-year (YoY) in 2026.

• Inflation

After falling back within the RBA’s target band in the first half (H1) of 2025, inflation rebounded in the second half (H2) of 2025, above the top of the RBA’s target band. A notable driver behind this increase was housing inflation, which tends to be persistent. The RBA expects trimmed mean inflation to rise to 3.2% in H1 2026, before easing to finish the year lower at 2.7%.

• Labour market

The unemployment rate has risen this year from 4.1% to 4.3%, remaining low by historical standards. The RBA expects the unemployment rate to edge higher to 4.4%, where it is forecast to remain throughout 2026 and all of 2027.

• Housing

The housing market has been strong this year, driven by RBA rate cuts, strong migration and favourable government policies. However, with the RBA expected to remain ‘on hold’ during H1 2026, the impact of this year’s rate cuts will start to fade.

• Reserve Bank of Australia

Having reduced rates by 75 bp in 2025, the RBA raised both its core inflation and unemployment forecasts, highlighting the delicate balance between the Bank’s dual mandates. This is expected to see the RBA remain on hold for the first half of 2026.

Technical analysis

After reaching an all-time high of 9115 in mid-October, the ASX 200 hit a low of 8383 in late November for a 7.7% pullback, marking its deepest correction since April.

Providing the 8383 low holds, the index is expected to extend its rebound back towards 8850 by year-end 2025.

From here, the index is then expected to move towards the 9300 – 9500 area by the end of 2026, where it would encounter multiyear trend channel resistance.

ASX 200 monthly candlestick chart

• _{Source: TradingView. The figures stated are as of 2 December 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}