Asian Markets Kick Off 2026 With Mixed Gains Amid Thin New Year Trading

The first trading day of 2026 brought a cautiously optimistic tone to Asian markets, though thin trading volumes—courtesy of lingering holidays in Japan, China, and New Zealand—kept momentum in check. While regional benchmarks posted modest gains, investors remained fixated on the broader narrative surrounding Federal Reserve policy and whether incoming leadership would continue the rate-cut trajectory that defined market sentiment throughout 2025.

Regional Performance: Divergence Amid Sparse Liquidity

Hong Kong’s Hang Seng index led regional gains, climbing 1.3 percent to cap off a remarkable year that saw the benchmark surge nearly 28 percent—its strongest annual performance since 2017. The impressive finish reflected a broader recovery narrative after a challenging start to 2025.

Seoul markets showed notable strength as well, with the Kospi average rising 0.65 percent to 4,241, buoyed by a retail-driven buying spree in technology stocks. Australian equities, by contrast, treaded water with the S&P/ASX 200 inching slightly higher to 8,723, weighed down by profit-taking in mining and gold stocks following Northern Star Resources’ downward revision of annual production guidance.

The thin trading environment proved characteristic of post-holiday markets globally. U.S. and European markets remained shuttered, limiting cross-border flows and leaving Asian traders operating in a relatively insulated ecosystem.

Dollar Weakness and Commodity Repricing

The dollar extended its recent slide, marking its sharpest drop in eight years as investors positioned for a softer monetary policy regime. This backdrop supported gold, which climbed nearly 1 percent on Friday after recording its most dramatic rally since the 1979 oil crisis during 2025. The precious metal’s outperformance reflected growing safe-haven demand amid economic uncertainty.

Oil prices remained essentially flat on the opening trading session of 2026, despite recording its worst annual performance since 2020. Market participants are eyeing the forthcoming OPEC+ meeting alongside geopolitical tensions as key variables for direction.

Fed Policy Uncertainty Shapes Outlook

The elephant in the room remains Federal Reserve policy. Jerome Powell’s tenure concludes in May, and President Trump has already signaled his preference for rates to decline toward 1 percent. This has created a complex backdrop for investors attempting to handicap 2026 interest-rate trajectories.

Market participants are now anchoring expectations on two additional rate cuts during 2026. The upcoming U.S. payrolls report and jobless claims data due next week will prove instrumental in determining market conviction around this outlook. Earlier data on unemployment benefit claims showed declines during the holiday week but remained within established ranges.

2025 in Retrospect: A Year of Extremes

Looking backward, 2025 delivered outsized returns despite pronounced volatility. The Nasdaq Composite surged 20.4 percent for the year, the S&P 500 advanced 16.4 percent, and the Dow gained 13.0 percent. These impressive showings materialized despite—or perhaps because of—considerable headwinds, including Trump-related tariff uncertainties and a euphoric rally in artificial intelligence-themed equities.

U.S. stocks faltered late in the year, however, with the major indexes posting losses on New Year’s Eve following the release of Federal Reserve meeting minutes that exposed meaningful divisions among policymakers regarding the appropriate pace of rate adjustments heading into 2026. The Dow dropped 0.6 percent, the Nasdaq Composite fell 0.8 percent, and the S&P 500 declined 0.7 percent in thin holiday trading conditions.

What Comes Next

As the calendar turns to 2026, the narrative remains unsettled. Thin trading volumes early in the year may continue to exaggerate volatility in both directions, but the underlying story—centered on Fed policy, economic resilience, and the duration of the AI-driven rally—will likely dominate investor focus for quarters to come.