Risk sentiment continues to "boil" in the first week of the new year, with no signs of cooling down in Wall Street's cross-asset frenzy.

In the first complete trading week of 2026, the risk sentiment on Wall Street is boiling over again. A cross-asset rally from meme stocks, high-yield bonds to small-cap stocks is showing no signs of slowing down. The U.S. stock market closed at record highs, injecting a shot of adrenaline into the new year. Signs of new economic momentum, productivity improvements, and a moderate inflation outlook all contributed to this rally. Against this backdrop, cyclical sectors, commodities, and speculative assets are all rising across the board. This market rally is not triggered by a single event, but rather a series of data points stronger than expected gradually shaping a consensus that the economic environment is improving. Strategists from institutions like Nomura International echoed this view, pointing out factors such as resilient employment, rising shipping rates, and robust car demand collectively driving a shift in market sentiment. Investors are moving away from safe-haven choices and tech giants from last year, towards market risk areas that typically lead early in the economic recovery stage. Despite a lack of clear signals on major policy issues such as tariffs under the Trump administration and the next steps from the Federal Reserve, the market saw a significant rally this week. Stocks related to industrial growth surged, and metal prices rose. Semiconductor demand for cars, appliances, and factory equipment remained strong, demonstrating broad economic vitality. The U.S. government also added fuel to this rally. President Trump announced new support measures for the real estate market, injecting fresh momentum into the already robust credit and real estate sectors. "In the current environment, overly defensive strategies really don't work," said Julie Bill, portfolio manager at Kayne Anderson Rudnick. "There is just too much 'sugar' flowing into the economy." However, in this near-doubling, three-year-long bull market of the S&P 500 index, such a soaring speculative sentiment has some market participants feeling suspicious about the timing. Michael O'Rourke, Chief Market Strategist at JonesTrading, believes that this optimism seems somewhat wishful thinking. "Intel Corporation's stock price surged 10% to a new high simply because its CEO met with the president," O'Rourke pointed out, also mentioning the surge in mortgage lenders' stocks after Trump announced plans to boost the credit market on Friday. "Currently, stocks are jumping by 10% to 20% a day, often based on secondary news developments or rehashing old themes that have been going on for months." Investors' appetite for risk is fully evident. This week, the S&P 500 index rose by 1.6%, while the Russell 2000 index surged by 4.6%. The Vanguard S&P 500 ETF (VOO) attracted $10 billion in inflows in just a few days a frenzy for a passive fund. A meme stock ETF skyrocketed nearly 15%, and a basket of the most shorted company stocks also rose by 7%. The credit market is also getting involved. Junk bond spreads narrowed by 10 basis points, stimulating new corporate borrowing. Even meme coins, long seen as speculative overtones, have started rebounding after last year's crash. "With stronger economic data, the broadening of market heat is reasonable, especially as there are more industries and countries globally showing good performance," said Sameer Samana, Global Stocks and Real Assets Head at Wells Fargo & Company. "However, we remain cautious about getting too deep into small-cap stock areas." Investors are no longer limited to just a few all-weather tech giants but are starting to bet on the real strength of the physical economy. Industrial production is accelerating. Despite reduced dealer inventories and fewer discounts from automakers, December car sales exceeded expectations, showing steady demand. U.S. service activity expanded in December at the fastest pace in over a year, contrasting with sluggish performance in other regions globally. Labor productivity grew at the fastest pace in two years, helping to contain labor costs. In the semiconductor industry, which is seen as a barometer of industrial demand, Microchip Technology Incorporated (MCHP.US) raised its performance outlook due to stronger-than-expected chip sales serving the physical economy. "The loose monetary policy combined with robust fiscal support continues to provide a favorable environment for the market," said Nathan Thooft, Chief Investment Officer at Manulife Investment Management, managing $160 billion in assets. "We expect economic activity to improve in the second quarter of 2026 and beyond, with drive coming from the aforementioned factors, lagging effects of monetary stimulus, and the boost to low-income groups from tax rebates." While Friday's employment report triggered another round of buying in the stock market, the data itself was weak, not enough for some market observers to assert that growth is fully back. According to the U.S. Bureau of Labor Statistics, after revisions to the previous two months' data, nonfarm payrolls only increased by 50,000 last month, below expectations. The unemployment rate slightly decreased to 4.4%, stabilizing after the record government shutdown ended. "I don't think it's enough to assert that the economy is 're-accelerating' because the hiring trends are still weak," said Priya Misra, Portfolio Manager at JPMorgan Asset Management. "However, a GDP growth rate of 2-3% and stable unemployment this year are enough to cheer the market."