The US stock market looks set to have another ripper of a year. Is our market going to follow suit or have another relatively disappointing performance?

My first story of the year for The Switzer Report yesterday (subscribing is the smartest money you'll spend all year!) questioned the likelihood of US stocks having a good year again. My answer was ‘yes’, it’s likely! But the question I didn’t answer was why our local market has done so poorly in comparison and will it have a better year?

Remember, if Wall Street goes up, we follow but by a lesser amount unless the negatives hurting our market change.

This morning the AFR informs us that the CBA is being challenged by BHP as the biggest by market capitalisation in the S&P/ASX 200 index. This comes as a commodities boom pushes up mining prices and the market finally accepts what analysts have been saying for over a year: the CBA (good bank that it is) is overpriced.

The analysts surveyed by FNArena are still anti-CBA, with the consensus predicting a 23% fall from its current price of $154. I think this is over-the-top but look at the table below.

Last year, the US-based S&P 500 index (which captures the stock price moves on America’s top 500 companies) rose 19.5% before dividends over the past 12 months. Meanwhile, the local S&P/ASX 200 was up only 6.93% as of yesterday. That’s underperformance with a capital U!

I don’t think this is purely a double-T effect explaining this (i.e., tech and Trump in the US) as the UK-based FTSE 100 index was up 23.3%.

Even in the politically troubled left-leaning France, the CAC 40 was up 12.82%.

What explains this underperformance? Here’s a list of issues that has held us back:

1. Because inflation has remained stubbornly high or interest rate cuts have been curtailed. The figures we’ve seen for the CPI have lots of economists tipping rates will rise this year and that’s not good for stock prices.
2. The Albanese Government has given tax cuts to offset the rising cost of living, but it has kept demand high and unemployment low. However, it has reduced the potential for rate cuts. And stock markets like rate cuts as they promise future economic growth and lower costs.
3. We don’t have many tech companies to excite overseas investors and the market here.
4. Resource stocks struggled for a big part of last year. If they’d risen as our banks surged higher, we would’ve had a great year for share prices.
5. Our productivity isn’t great. In fact, it’s poor. That affects company profitability and then the stock prices of those companies.
6. China isn’t booming. They’re an important export customer and we get a lot of growth from selling our mining, agricultural and tourism goods and services.

So, what we have here is an economy that currently has unemployment at a good 4.3% but our inflation rate is a pretty bad 3.4%, while our economic growth rate is a weak 2.1%.

For the year ahead, an improving China could help our stock prices. This partly explains why BHP is closing in on the CBA as the market’s biggest stock.

Cecile LeFort at the AFR tells us today that “BHP is now worth $236 billion by market capitalisation, nipping at the heels of CBA’s $258 billion valuation.”

“It’s the realisation that CBA had a valuation which was one of the highest in the world for a bank that resulted in the shares being sold down,” said Sean Sequeira, chief investment officer of Australian Eagle Asset Management, which owns both stocks. “At the same time, BHP is being supported by strong commodity prices and a strong outlook.”

China grew at 5% in 2025. While this is good, in the 1990s the world’s second biggest economy grew at rates ranging from 10% to 15% in 1994!

I can’t see the Albanese Government doing much to excite stock prices or raise productivity, and we won’t create tech giant companies any time soon.

So, the big issue for stocks will be our inflation rate. That puts January 28 and February 3 in the spotlight for our stock market.

On January 28, we get the December quarter inflation number. If it’s lower than expected, then the RBA won’t raise interest rates on February 3, which the market will like. And if China and Trump can stop goading each other and the Chinese economy can get into overdrive, then our market will have a better-than-expected year.

In terms of the help our market gets from Wall Street, a CNBC survey looked at the forecasts for the S&P 500 of 14 financial and broking businesses. They all saw US stocks heading up. The average rise was 10%.

It’s why I remain positive on stocks. But if we want a great result in 2026, then a lot of local negatives have to turn positive and Beijing need to get the Chinese economy going.