As we head into 2026, and with the reporting season just around the corner, the key questions is, has the market run out of puff, or are there still gains to be made?
The team at Wilsons Advisory has run the figures, and the good news is that they believe the market will push higher, particularly in certain sectors.
Miners dominated in 2025
Firstly, looking back on last year, the S&P/ASX 200 Index (ASX: XJO) delivered a "solid" total return of 10%, with the strongest contributor being the materials sector, up 36% "as sentiment towards the commodity complex improved in the second half of the year''.
As the Wilsons team said in its note to clients:
The biggest contributor to the strength of the materials sector was the gold miners, as the precious metal surged +65% during the year amidst a prevalence of macro and geopolitical risks. There was also impressive strength among miners exposed to base metals, such as Copper and Aluminium, driven by tightening supply/demand dynamics, as well as critical minerals such as Rare Earths and Lithium, as their prices staged a recovery from their respective slumps.
Other sectors which performed well included industrials, up 14%, utilities up 13% and financials up 12%.
Notably, within financials, after demonstrating market leadership throughout 2024 and for much of 2025, the bank sector began to give back its outperformance towards the end of the year. This was driven by the partial unwinding of CommBank's extreme valuation premium as the bank failed to deliver against high market expectations of continuing earnings upgrades.
Rates outlook cause for concern
Looking forward to this year, the Wilsons team said the outlook is "somewhat constrained" by the risk of official interest rate increases, and high valuations.
That said, the market now offers a relatively supportive earnings growth backdrop, with consensus pointing to 10% earnings per share growth for the calendar year, which would represent the strongest rate of earnings growth in four years.
Wilsons' key recommendations are to stay overweight in resources, stay underweight in banks, to retain exposure to "AI winners", to remain underweight in retail, and overweight in supermarkets.
On the resources front, "We see scope for a continued metal pricing upgrade cycle and a sustained rotation into the resources sector in 2026, supported by several key factors''.
These included a healthy global economy, a weakening US dollar, structural demand tailwinds driven by factors including the energy transition and re-armament, and supply tightness.
On the banks, the Wilsons team believes, "valuations remain prohibitively expensive for a sector offering below market, low- to mid-single-digit consensus earnings per share growth".
AI growth to continue
In the AI sector Wilsons says the AI revolution is, "a genuine megatrend that is closer to early than late cycle and is supported by continued upgrades in hyperscaler capex forecasts''.
The first wave of AI winners comprises the 'picks and shovels' businesses that provide the digital infrastructure required for AI deployment, and are therefore directly leveraged to the ongoing investment cycle.
They singled out NextDC Ltd (ASX: NXT) and Goodman Group Ltd (ASX: GMG) as data centre companies to watch.
Meanwhile in retail, the rates outlook, "'presents an incrementally more challenging environment for the cyclical retail sector in 2026''.
While an 'on-hold' RBA (Reserve Bank of Australia) remains a plausible outcome for 2026, the balance of risks over the next six months appears skewed towards a rate rise rather than a cut. This environment presents risks to retailer earnings and valuations, with our analysis showing that the sector typically underperforms in the lead-up to rate hikes as the market anticipates softer macro conditions for consumers.
