The stock market has recently shown a surge, marking its first weekly increase of the year, primarily driven by easing interest rate expectations and robust earnings reportsThe performance of Wall Street's major indices last week was the best since November, showcasing a promising rebound in investor sentimentExperts, including Michael Wilson, Chief U.SEquity Strategist at Morgan Stanley, emphasize that the dollar and interest rates continue to play a pivotal role in influencing stock performanceNotably, the strengthening of the dollar has a significant impact on individual stocks, with the optimal comfort zone for the 10-year Treasury yield being between 4.00% and 4.50%. There remains confidence in high-quality stocks, particularly within the financial, media, and entertainment sectors, which are expected to show strong earnings revisions throughout the year.

Furthermore, renowned analyst Jerry Chen from GAIN Capital forecasts a shift towards earnings-driven growth for U.S

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equities, with an anticipated annual profit growth of approximately 12%. The development of AI technologies and the dynamics surrounding related companies are expected to continue propelling tech stocksHowever, investors are cautioned to remain vigilant about the potential risks associated with high valuations.

While last week's economic data from the U.Sappeared solid, with both the Producer Price Index (PPI) and Consumer Price Index (CPI) growth falling below expectations, it ignited optimism among investors regarding the possibility of interest rate cuts, thus rekindling confidence in the stock marketHowever, it is prudent for investors to question the validity of this assumptionAnother contributing factor to the stock market's rally was the initiation of the earnings season, with 17 financial institutions reporting stronger-than-expected earnings—16 of which reported growth, while only one remained flat

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Among the five tech companies that disclosed their earnings, only one faced a decline, with the remaining four experiencing growth.

In a contrasting scenario, the dollar faced significant challenges, especially on Monday, when the index plummeted by over 1.2%, dipping below the 108 mark and hitting its lowest level since January 8, at 107.91. Major currencies such as the euro and the pound rose above 1% against the dollar, with the Canadian and Australian dollars also recording notable gains, alongside a substantial increase in the offshore Chinese yuanCurrently, the trajectory of the dollar index is influenced by U.Spolicy directions and Fed expectationsSpeculative market fluctuations due to potential U.Spolicies have exerted downward pressure on the dollar, although demand for the dollar as a safe-haven asset remains intactAnalysts from Morgan Stanley have suggested that the interest rate differential between the U.S

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and Japan is likely to narrow, leading to recommendations for yen purchases.

In the short term, the dollar index's decline appears to be a simple adjustment, complicating efforts to ascertain whether a peak has been reachedThis drop can largely be attributed to the Fed's signal of a commitment to further rate cuts, which has not only been reflected in exchange rates but also in the rapid decline of the 10-year U.STreasury yield from 4.8% to 4.62%. While a significant crash in the dollar index is not anticipated shortly, due to the weakened economy in the Eurozone, it would be overly simplistic to only view the dollar index, as observing exchange rates among various currencies offers a more comprehensive pictureAsian currencies have exhibited greater resilience compared to the Eurozone and commodity currencies over the past year and even more recently, demonstrating a correlation with local economic growth and interest rate differentials

• $37 Billion Flows into Broad-Based ETFs to Start the Year
• Sharp Decline of the Dollar
• Enhancing Service Quality in the Futures Market
• Private Bond Fund Yield Exceeds 260% Last Year
• Real Estate Market Showing Signs of Improvement

During times of dollar weakness, these Asian currencies could see increased global capital inflow.

On Wall Street, major financial institutions delivered robust performances in their Q4 earnings reports for 2024, with results generally surpassing market expectationsInitiatives aimed at reducing regulations and stimulating trading activity, in addition to policies promoting tax cuts and increased oil production, are expected to contribute to heightened economic growth and inflation, favoring the large banking stocksThe resurgence of investment banking and rising market volatility have also bolstered trading revenues for Wall Street banks, with institutions like JPMorgan and Goldman Sachs posting record trading incomeThe market is filled with optimism regarding a rebound in M&A and IPO activities in 2025. Although net interest earnings are not projected to revisit prior growth levels, a resilient overview remains, suggesting that major banks could benefit from the trend towards lower interest rates.

This round of financial results has particularly highlighted the shine in investment banking and asset management sectors

The six largest U.Sbanks saw an average year-over-year profit surge of 120% in Q4, and an incredible 30% year-over-year growth for the entire yearHowever, discrepancies emerge when examining annual profit contributions—for instance, Goldman Sachs reported a staggering 68% growth, while Bank of America and Wells Fargo hovered at just 2% and 3%, respectively, mainly attributable to a decrease in net interest incomeNotably, Wells Fargo's net interest income comprises a striking 58% of its total earnings, yet it has witnessed a 9% year-over-year declinePrior high-interest rates severely affected banks' interest margin revenuesShould the Fed pursue a continued rate-cutting path, it would favor traditional bank operationsIt is anticipated that bank stocks could find support in the medium to long term, although short-term price fluctuations may arise from profit-taking actionsThis is particularly evident in banks with a higher proportion of traditional business models, where stock price rises have significantly outpaced earnings growth.

In another twist, gold prices have surged owing to the weakening dollar

On Monday, the precious metal marked gains and analysts like Tim Waterer from KCM Trade suggest that a moderation in trade policies could alleviate inflationary concerns, thus pushing down the dollar and Treasury yields, which would in turn lift gold pricesA report from Goldman Sachs highlights the resilience of gold as a financial asset, with only a 10% chance of being subjected to a broad 10% tariff over the next 12 monthsIn addition, the same report has also raised predictions concerning central bank demand for gold, forecasting an average price around $3000 per ounce by mid-2026.

While it may appear that rising tariffs could exacerbate inflation, misleading investors into believing the Fed might adopt a hawkish monetary policy that would boost the dollar, the reality is quite the oppositeExcessive tariffs could significantly raise inflation levels, subsequently dampening consumer demand and ultimately prompting the Fed to initiate further interest rate cuts—actions detrimental to the dollar

At this juncture, a moderate increase in tariffs seems unlikely to fuel inflation ostentatiously, yet it would necessitate rate cuts to stimulate the economyTherefore, a prolonged period of dollar weakness might be on the horizon, leading to continued appreciation of goldIt is anticipated that central banks will continue to increase their gold reserves throughout the year, potentially attempting to drive gold prices to reach $2835 per ounce.

Lastly, Texas Instruments is set to kick off the earnings season for semiconductor stocks this week, with expectations that it might provide signals indicating a recovery in demand for analog chipsSince the beginning of 2023, the performance of analog chips has been affected by excessive customer inventory and weak demand; however, the integration of AI technologies in the automotive and industrial sectors may lead to a resurgence in analog chip demand by mid-year or later

Additionally, semiconductor giants such as Analog Devices and UMC have begun indicating a revival in demand for automotive and industrial chipsAs one of the world's largest producers of analog chips, Texas Instruments exceeding market expectations in its earnings report would pave the way for a successful earnings season for the semiconductor industry and lift the Philadelphia Semiconductor Index.

Currently, the AI market remains in its nascent phase centered around computational AI, predominantly drawing demand for processing and big data center chipsA more advanced stage of inferential AI will necessitate sophisticated analog and storage chipsTexas Instruments stands at the forefront of the analog chip industryThe expectation is that the company is likely to report a 10% decline in revenue and a 28% drop in net profitAn accelerated transition from the first stage to the second stage of AI may spur Texas Instruments' growth, yet this prospect would likely take considerable time