Markets Kick Off Key Week with Risk-On Sentiment; Gold Surges Past $5,000

Stocks climbed Monday as investors leaned into earnings optimism and potential economic reacceleration, while geopolitical jitters and weather-driven commodity moves pushed gold past $5,000 and natural gas sharply higher. The U.S. dollar dropped to its lowest level since 2022, reflecting speculation around potential intervention to support the yen. Despite currency and commodity volatility, equity markets stayed resilient, with investors rotating into broader cyclical exposures amid signs of earnings broadening beyond tech.

Key Headlines & Market Movers:

• Gold and Dollar Diverge on Geopolitics and FX Speculation: Gold futures topped $5,000 an ounce for the first time, reflecting strong safe-haven demand driven by rising geopolitical concerns, including U.S.-Canada-China trade tensions and fears of a government shutdown. Meanwhile, the U.S. dollar continued its recent slide, falling 0.4%, with markets pricing in the likelihood of coordinated U.S.-Japan intervention to stem yen weakness.

AI Earnings Spotlight: Expectations High, Broader Participation Grows: Tech earnings dominate this week’s calendar, with investors focused on AI leaders to justify capital spending surges. While recent outperformance in AI-related names has cooled, firms like Nvidia and Microsoft remain center stage. JPMorgan notes that guidance from early reporters has been strong, suggesting a broadening of corporate earnings strength. This sets the stage for a potentially constructive shift in market leadership if results confirm resilience across sectors.

• Fed Pause Expected, but Politics Loom Over Meeting: The Fed is expected to hold rates steady following three consecutive cuts, with Chair Powell likely to avoid signaling much about future moves. Political overhang is building, however, with Powell’s term expiring in May and speculation mounting around his successor under President Trump. This meeting, while policy-static, may see Powell emphasize Fed independence amid increased White House scrutiny and a noisy political backdrop.

Small Caps and Cyclicals in Focus Amid Reacceleration Hopes: A notable theme in early 2026 has been rotation into small caps and real-economy sectors. Equal-weighted indices are outperforming cap-weighted benchmarks, reflecting renewed confidence in broader earnings growth. Analysts cite strong forward revisions in cyclical areas like consumer, industrials, and financials. While the AI trade remains foundational, investors appear increasingly willing to diversify exposure ahead of potentially more dovish leadership at the Fed later this year.

S&P 500 Sector Performance

Looking Ahead

All eyes are on the Magnificent Seven earnings reports and Wednesday’s Fed decision for cues on the next leg of the rally. If tech earnings deliver and Powell keeps his messaging balanced, risk assets may benefit from reduced volatility and further broadening. That said, geopolitical tensions, potential policy shifts, and ongoing currency volatility will keep investors alert. A healthy macro backdrop and expected 15% earnings growth for 2026 support a constructive near-term outlook, but leadership rotation and Fed dynamics remain key variables to monitor.

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