Stocks in Asia extended their two-day advance after bullish momentum lifted shares on Wall Street, indicating that a much-touted year-end rally is taking hold.
MSCI Inc.’s gauge of Asia Pacific equities rose 0.3% early on Tuesday after an index of global stocks set a fresh closing record. Japan’s Topix climbed 0.5%. US index futures were up slightly, while gold added to its gains after finishing at an all-time high.
The upbeat mood in the US session helped the S&P 500 erase December losses and put it on course for an eighth straight month of gains, which would mark the longest winning run since 2018. Tesla Inc. and Nvidia Corp. led megacaps higher.
“Everything is shaping up for a festive end to the year,” said Mark Hackett at Nationwide. “This week is being driven by technical tailwinds, a bit of stimulus optimism, and self-fulfilling prophecy, all of which are setting up a strong year-end and a solid start to next year.”
The risk-on moves weighed on Treasuries, which sold across the curve Monday. Both two-year and 10-year yields rose around two basis points. Traders are loading up on Treasury options targeting a bond rally that would send 10-year yields back to 4% in coming weeks, a level not seen since the end of November.
In Asia, focus continues to be on the yen, which was slightly higher against the dollar. The currency rose on Monday after Japan’s Finance Minister Satsuki Katayama said the country has a “free hand” to take bold action against currency moves that are not in line with fundamentals. The comments were her strongest warning yet to speculators following the yen’s weakening even after the central bank hiked interest rates on Friday.
Meanwhile, developer China Vanke Co. won last-minute support from creditors to extend a bond grace period in a reprieve that helps it avoid default.
Chinese stocks will also be watched after they were downgraded by strategists at Citigroup Inc.
Separately, the US Federal Communications Commission said it would ban most foreign-made drones and critical components for unmanned aircraft systems going forward, a day ahead of a deadline for adding Chinese drone-maker SZ DJI Technology Co. to the agency’s so-called covered entity list.
More broadly, a gauge of the dollar edged lower again after falling 0.4% on Monday, when gold and silver struck new peaks with geopolitical tensions in focus. West Texas Intermediate, the US oil benchmark, slipped after rising more than 2% in the previous session as the US intensified a blockade on Venezuela, with American forces boarding one tanker and pursuing another within weeks of capturing a vessel.
Santa Rally
After a strong year for stocks, the big question is whether investors will carry that positive mood into 2026.
Positioning in equities is rising and fund managers are maintaining record low levels of cash. Their expectations of a further rally are outweighing concerns over rich valuations. The Federal Reserve path is also being closely watched, with two rate cuts priced for next year.
Fed Governor Stephen Miran told Bloomberg Television the central bank risks sparking a recession unless it continues lowering rates next year.
The Philadelphia Stock Exchange Semiconductor Index climbed 1.1% on Monday after adding more than 5% in the previous two sessions. The measure is up about 43% this year.
Despite bouts of volatility and concerns about the AI trade, tech has led the market to the upside this year, and it will probably be the difference between a positive and negative December, said Chris Larkin at E*Trade from Morgan Stanley.
“If a Santa Claus rally does kick in this year, St. Nick’s gift bag will likely need to be full of positive tech sentiment,” he noted.
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