U.S. stocks kick off the Christmas rally! AI, precious metals, and forex traders are already betting on 2026?

The US stock market kicked off the Christmas rally after an AI dumping, hitting the highest trading volume in history last Friday, with AI concept stocks rebounding by double digits. The Federal Reserve's interest rate cut and the dovish stance of the Bank of Japan pushed the dollar below the 99 mark, with gold rising 2.4% to a new high of 4443 USD. The catalyst for 2026 is the appearance of the dovish Federal Reserve chairman, with the market betting on Hasset or Worsh, expecting a rate cut of over 50 basis points, and the appreciation of the RMB will be favourable for the Asia-Pacific stock market.

Signals of Capital Inflow Behind the Highest Trading Volume in History

(Source: Trading View)

The rebound in the US stock market began last Thursday, but the real explosion happened on Friday. According to information from Wall Street investment banks' trading desks, last Friday almost became the highest trading volume day in US market history. This “highest in history” is not an exaggeration, but rather a statistically verified historical data, indicating that global funds concentratedly surged into the US stock market on this day, surpassing any single-day trading volume during the panic of the 2020 pandemic, the meme stock frenzy of 2021, and even the financial crisis of 2008.

What does such a large Trading Volume reflect? The rapid formation of market consensus. When trillions of dollars in funds make the same buying decision on the same day, it often marks a significant turning point in the trend. Previously heavily sold AI concept stocks like Coreweave and Oracle have seen double-digit Rebound, indicating that funds are “replenishing winning positions,” which is a typical characteristic of the Christmas market.

So far this month, the S&P 500 has largely maintained a flat position after rebounding last Thursday and Friday, and the market is likely moving towards “replenishing the winning positions” to realize a Christmas rally. The so-called Christmas rally refers to the phenomenon where U.S. stocks are highly likely to rise during the last 5 trading days of the year and the first 2 trading days of the new year, with gains typically exceeding normal levels. For example, since 1950, the average gain during the Christmas period for the S&P 500 has been 1.3%. This year's cycle begins this Wednesday.

Gainscope Group senior analyst Chen Jierui stated that the Bank of Japan's less-than-expected hawkish statement has temporarily eliminated significant uncertainties in the market, easing concerns about liquidity and setting the stage for the Christmas market. This Monday, major asset prices rose in sync, significantly driven by the Federal Reserve's rate cut and the Bank of Japan's dovish rate hike. The three major U.S. indices recorded a positive start this week, with large tech stocks generally rising, among which Nvidia increased by 1.5%.

A trader from a US investment bank revealed that the previous AI dumping mainly stemmed from leveraged sell-offs by hedge funds, but starting from the second half of last week, buying interest in AI-related sectors has re-emerged, seeking exposure to semiconductors, broad technology, and growth factors. The consumer discretionary sector saw the highest net buying (the first time in 3 weeks), while hedge funds net sold US healthcare stocks for the first time in 14 weeks, after healthcare was viewed as a hedge theme during the AI sell-off wave.

2026 dovish Federal Reserve Chairman ignites bull engine

“Never go against the Federal Reserve,” and “In an environment of interest rate cuts and rising profits, it is difficult for the stock market to perform poorly” have become the tenets of the current market, highlighting the importance of Federal Reserve policy. Various sectors believe that a major catalyst in 2026 will be the arrival of the new Federal Reserve chairman, who is likely to be a “big dove.”

Previously, White House economic advisor Hassett had a significantly higher chance of nomination, but recently, the voice for former Federal Reserve Governor Kevin Warsh has started to rise. Nomura's chief economist for developed markets, Saif, stated that both are dovish, and if either of them were to assume the chairmanship, it would lead to a significant dovish shift in the leadership of the Federal Reserve, distinguishing it from the policy tone during Powell's era.

Hassett's dovish tendencies are considered more extreme than those of Warsh. Hassett is more likely to align fully or almost fully with the policy demands of the Trump administration, while Warsh's dovish stance is relatively moderate and does not exhibit an excessively radical easing direction. Hassett is viewed as a staunch “Trump loyalist,” having supported his policy agenda for nearly a decade even before Trump’s first term, closely tying him to Trump's policy positions. The term “pro-Trump faction” refers to candidates who tend to support Trump’s policies but whose loyalty does not reach the level of “staunch loyalty”, with Warsh categorized as such.

If Hasset takes office, it is highly likely that he will promote a larger interest rate cut beyond the current forecast (50 basis points), which is highly consistent with Trump's call for easing. Even if Waller is appointed, his dovish stance will be clearer than Powell's. This expected dovish shift in the leadership of The Federal Reserve (FED) is the biggest policy support for the 2026 US stock bull market.

2026 Core Catalysts for U.S. Stocks

1. Dovish Federal Reserve Chair Appears

· Hasset or Worsh are both dovish, and the policy tone has significantly shifted.

· The expected rate cut will exceed the current market forecast by 50 basis points.

· Trump's appointment may be later than early January 2026

2. Weakening of the US Dollar and Reallocation of Funds

· The US Dollar Index fell below the 99 mark, down 8% year-to-date.

· Promote the global stock market rebound and the strength of commodities

· Gold reached a new high of 4443 USD, silver broke through 69 USD

3. The AI sector regains buying interest

· Hedge funds reduce leverage and seek exposure to technology and growth again.

· Consumer discretionary sector net buying turns positive for the first time in 3 weeks

· The healthcare hedging theme is being dumped, with funds flowing back into aggressive assets.

The Appreciation of the Renminbi and the Chain Reaction in the Asia-Pacific Stock Market

The weakening of the US dollar not only drives a rebound in US stocks but also creates a favorable environment for the Asia-Pacific market. Goldman Sachs' latest report predicts that the renminbi will rise to the 7 level in the coming year. Empirical data shows that when the renminbi exchange rate rises, the Chinese stock market often performs well, which is consistent with the trading patterns of most Asian emerging markets. Theoretically, the appreciation of the renminbi can favourably impact the Chinese stock market through channels such as accounting, fundamentals, risk premiums, and the flow of funds in investment portfolios.

From an industry perspective, when the renminbi appreciates, non-essential consumer goods, real estate, and integrated financial (brokerage) industries typically outperform the market, while defensive industries perform the opposite. UBS expects that by 2026, the overall currency in the Asia-Pacific region is likely to rise further, with a potential increase of 2-3% against the US dollar. Zhao Wenli, Chief Hong Kong Stock Strategist at Jianyin International, stated that the Hong Kong stock market may rise first and then pull back in 2026, with institutions tending to buy on dips before the end of 2025 to prepare for the spring market early next year.

Chen Jierui pointed out that after the Nasdaq 100 index breaks through the key resistance and neckline at 25200, it is expected to continue the upward challenge towards the trend line at 25670 and the previous high at 25800. A breakout will once again challenge the historical high set in October. In a relatively optimistic market atmosphere, buying can continue to be considered.