The first trading week of 2026 saw global financial markets exhibit strong risk-on sentiment, with stocks, commodities, and credit markets rallying in unison from Wall Street to Shanghai. Investors are aggressively shifting away from last year's defensive assets, instead placing bets on cyclical sectors and higher-risk assets, driving major stock indices to record highs.

The U.S. S&P 500 index rose 1.6% this week to hit a new peak, while the Russell 2000 index, representing small-cap stocks, surged 4.6%, indicating a broadening market rally.

Simultaneously, Asian markets also rode the wave of optimism. The A-share market witnessed a historic moment as the Shanghai Composite Index broke through the 4,100-point barrier, closing higher for an astonishing 16 consecutive days, with single-day turnover exceeding 3.15 trillion yuan, showcasing a powerful influx of capital.

The commodities market also delivered a standout performance. Boosted by geopolitical factors and inflation expectations, crude oil prices recorded their largest single-day gain since last October, silver surged 10% for the week, and gold approached its historical high. Despite U.S. non-farm payroll data slightly missing expectations, figures showing service sector expansion and productivity gains, combined with policy support from Washington, led markets to temporarily overlook potential macroeconomic uncertainties.

Tao Chuan of Guolian Minsheng Securities believes the "undiscriminated rally" in global stocks at the start of the year is driven by a liquidity battle between short-term "small certainties" and long-term "big" expectations. In the short term, the Fed's restart of its balance sheet expansion (RMP), coupled with the drawdown of the Treasury General Account (TGA), could unleash a liquidity feast of $600 billion in the first quarter, returning basic liquidity to a comfortable zone. However, while enjoying the current "ideal scenario," it's crucial to remain vigilant about risks stemming from a weak dollar's lack of empirical support and potential corrections in future expectations.

Wall Street's risk appetite is heating up, with capital flowing into high-beta assets. As investors bet on a strengthening real economy, money is moving from last year's outperformers—the tech giants—towards riskier segments of the market. Beyond the notable performance of the Russell 2000, the Vanguard S&P 500 ETF (VOO) attracted $10 billion in just a few days. More speculative assets are also active; a "Meme stock" ETF soared nearly 15%, while a basket of the most heavily shorted stocks rose 7%, marking their best start to a year since at least 2008.

The credit market joined the狂欢. Junk bond spreads narrowed by 10 basis points, stimulating new corporate borrowing. Julie Biel, a portfolio manager at Kayne Anderson Rudnick, stated, "Being overly defensive really doesn't work; there's just too much 'sugar' injected into the economy." Furthermore, policies from Washington fueled the gains, such as new initiatives from U.S. President Trump supporting the housing market. Michael O’Rourke, Chief Market Strategist at JonesTrading, noted that Intel's stock surged to a record high following its CEO's meeting with Trump, and shares of mortgage originators also rose on Trump's credit market support plan. Trump's quantitative easing-like policies have caused mortgage-backed security (MBS) prices to soar.

Despite the buoyant sentiment, the latest jobs data was not without flaws. According to the U.S. Bureau of Labor Statistics, non-farm payrolls increased by only 50,000 in December, below the expected 70,000, while the unemployment rate edged down to 4.4%. However, investors appeared to focus more on the positives. Bloomberg reported that U.S. service sector activity expanded at its fastest pace in over a year in December, and labor productivity rose at its quickest rate in two years, helping to contain employment costs. Nathan Thooft, Chief Investment Officer at Manulife Investment Management, believes that accommodative U.S. monetary policy coupled with strong fiscal support continues to provide a favorable backdrop for economic upside, with expectations for improved economic activity in Q2 2026 and beyond.

A-shares Witness History: Shanghai Composite's 16-Day Rally and 3-Trillion-Yuan Turnover In the Chinese market, the rally was equally fervent. On Friday, January 9th, the A-share market continued its strong momentum, with the Shanghai Composite Index breaking through the 4,100-point milestone to reach a near 10-year high, achieving a historic "16 consecutive positive closes." By the market close, the total turnover for A-shares reached 3.15 trillion yuan, marking the first time it had surpassed the 3-trillion-yuan threshold since October 2025. Historical data shows that, including this instance, there have only been 6 occasions in A-share history where turnover exceeded 3 trillion yuan, highlighting the exceptionally high market activity and intense investor participation.

Geopolitics Boost Commodities; Oil, Gold, and Silver Rise Together Propelled by a combination of geopolitical risks and inflation expectations, the commodities market surged significantly this week. Crude oil prices soared on Friday, posting their largest single-day gain since October. Robert Rennie, Head of Commodity Research at Westpac Banking Corp., commented, "Crude oil remains caught in a complex tug-of-war between heightened geopolitical risks and rising inventories." Meanwhile, precious metals also showed strength. Silver skyrocketed 10% this week, with platinum following closely behind.

Despite a stronger U.S. dollar, gold surged to near its all-time high.

Goldman Sachs's geopolitical risk basket rose sharply this week, driving sectors like defense stocks significantly higher.

Concurrently, as geopolitical risk spiked, volatility in both stocks and bonds plummeted.

Underlying Concerns Behind the Euphoric Sentiment Although the market is bathed in a bull market atmosphere, not all voices share the same optimism. Michael O’Rourke of JonesTrading believes that after a three-year bull run where the S&P 500 has almost doubled, this surge in speculative spirit seems somewhat incongruous, suggesting the optimism might be wishful thinking. Rich Privorotsky, Head of Goldman Sachs's Delta-One desk, stated that the market feels like it's "picking everyone's pockets," with high dispersion, underperforming tech stocks, and the persistent winners not being pure long-term growth stocks but cyclical names tied to nominal economic strength. He questioned whether the market was carrying excessive risk premium into the weekend due to oil volatility. Additionally, the succession for the Federal Reserve Chair has become a market focus. It is reported that Trump is expected to decide on Jerome Powell's successor this month, with Warsh and Hassett currently seen as the main contenders.