Market Wit Effect in the Policy Vortex: US Dollar Under Pressure, Precious Metals Hit New Highs, Tech Stocks Lead the Rally

On Monday, the global markets demonstrated a typical policy expectation cycle—Trump repeatedly voiced tariff threats, which instead triggered increased “sell the dollar” trades. The US dollar index fell 0.25% to 98.8, and US Treasury yields fluctuated. Meanwhile, gold broke through the $4,600 level, rising 1.97% to a record high; WTI crude oil rose 1.8% to surpass the $60 mark. Behind this market reaction is a vivid illustration of the Witt Effect—market expectations reversing due to policy uncertainty.

Policy Impact and Stock Market Divergence Logic

US stocks rose across the board but with varying gains, revealing a deeper market logic: the Dow Jones up 0.17%, the S&P 500 up 0.16% to 6,977 points, and the Nasdaq up 0.26% to 23,733 points. Beneath this seemingly stable surface is a fierce divergence between technology and financial sectors.

Alphabet’s market capitalization broke through the $4 trillion mark for the first time, becoming a market focus. The AI collaboration between Apple and Google (Siri adopting the Gemini foundational model) reaffirmed the tech giants’ absolute dominance in artificial intelligence. In contrast, bank stocks suffered heavy losses—American Express and Capital One plunged 4.2% and 6.4%, respectively, while JPMorgan Chase and Citigroup fell 1.4% and 3%. This wave of selling was driven by Trump’s new policies: requiring credit card companies to keep interest rates below 10%, or face illegality. The policy directly impacts the financial spread model, and the Witt Effect is evident—market concerns about policy enforcement are pre-priced into related sectors.

Apple rose 0.34%, Tesla 0.89%, Nvidia 0.03%—the contrasting gains in new energy and chip sectors reflect investors’ differing expectations about policy sustainability.

Escalating Iran Tensions and the Double Impact of Tariffs

Iran confirmed that hundreds of people had died amid recent turmoil. Trump immediately wielded the tariff stick: any country conducting business with Iran would face a 25% tariff on all transactions with the US, effective immediately. This order disrupted market expectations of military escalation—some investors instead believed this move temporarily reduced the likelihood of US military intervention in Iran, exemplifying the Witt Effect.

White House Press Secretary Liewitt stated that Trump favors diplomacy but would not hesitate to use military force if necessary. This “soft-hard” posture created market uncertainty. Reports indicate Trump is inclined toward attacking Iran but has not made a final decision; each statement could trigger jumps in asset prices.

Federal Reserve Independence Crisis and US Dollar Depreciation

The US Department of Justice launched a criminal investigation into Federal Reserve Chair Jerome Powell, who responded by saying, “The Fed’s disobedience has consequences.” This sparked deep concerns about the Fed’s independence. Several former Fed chairs—Yellen, Greenspan, Bennett—along with former Treasury secretaries Paulson and Geithner, issued joint statements emphasizing the core importance of Fed independence for economic stability.

Treasury Secretary Yellen warned Trump that the federal investigation into the Fed chair was “a mess” and could harm financial markets. This, paradoxically, strengthened Powell’s position—he has become more assertive. The Witt Effect reappears: policy threats did not weaken the target but instead prompted a reassessment of policy independence.

The fundamental reason for the US dollar’s pressure lies here—investors expect political interference to weaken the Fed’s monetary policy effectiveness, leading to doubts about the dollar’s credibility.

Quick Overview of Global Markets

Stock Markets: US stocks rose across the board, European stocks were mixed; Germany’s DAX 30 up 0.57%, France’s CAC 40 down 0.04%, UK’s FTSE 100 up 0.16%. China’s Golden Dragon Index surged 4.26% to 8,023 points, reflecting optimistic expectations from overseas investors about China’s AI development prospects.

Crypto Markets: Bitcoin at $96.98K, up 1.95% in 24 hours; Ethereum at $3.37K, up 2.09%. Crypto markets follow the traditional “sell the dollar” rhythm, creating positive feedback on dollar depreciation expectations.

Currency Fluctuations: USD/JPY up 0.14%, EUR/USD up 0.26%. The yen has rebounded somewhat, but according to Fitch’s latest assessment, the yen remains at a historically weak level, expected to mildly appreciate by about 6% by 2026. The dollar index fell 0.25% to 98.8, but the limited decline indicates market confidence in the dollar’s long-term value remains.

Commodities: Gold rose 1.97% to $4,597.9 per ounce, hitting a record high; WTI crude oil up 1.8% to $59.8 per barrel, marking three consecutive days of gains.

Explosive Growth in Chinese Concept Stocks and Tech Investment Wave

Investors are focused on China’s AI development prospects. Alibaba’s ADR surged 10.2% to $166.31, the largest increase since August 29, reflecting strong optimism. The NASDAQ Golden Dragon Index rose 4.26% to 8,023 points. Overseas capital’s optimistic outlook on whether China can surpass the US in next-generation AI paradigms is the core driver of this rally.

Tech Giants’ Computing Power Race

Meta CEO Mark Zuckerberg announced the launch of the “Meta Compute” strategy, planning to build tens of gigawatt-scale computing infrastructure within this decade, with future expansion to hundreds of gigawatts. This is a direct response to intensified competition from OpenAI and Google AI—after the Llama 4 model market reaction was lukewarm, Meta is increasing investment in infrastructure. The company has committed to $72 billion in capital expenditure by 2025.

Moody’s estimates that data center-related investments will exceed $3 trillion over the next five years. Six major US cloud service providers (Microsoft, Amazon, Alphabet, Oracle, Meta, CoreWeave) are expected to invest around $500 billion in data centers this year. Banking financing plays an “important role” in this, but due to the large scale of funds, more institutional investors will participate.

Subtle Shift in Monetary Policy Expectations and Inflation Targets

Legendary hedge fund manager Ackman believes that the US returning to a 2% inflation target is “unrealistic,” and the Fed will abandon that goal in favor of a new target of 2.5%-3%. He is cautious about further rate cuts, believing that while AI can boost productivity, it is insufficient to support rates returning to previous lows.

Additionally, Ackman suggests the US adopt the Australian model—establishing a mandatory pension system where employers and employees save into diversified investments. He has reportedly proposed this to Trump, who “really likes it.” This reflects a new awareness of US wealth inequality—market focus on whether everyone can become a capitalist.

Trump and Supreme Court Tariff Power Struggle

Trump warned on social media that if the Supreme Court rules against tariffs, the US could face hundreds of billions of dollars in damages, plus the cost of investments made by companies to avoid tariffs, totaling trillions—“It would be a mess, almost impossible for the country to pay.” Trump claimed that if the Supreme Court issues an unfavorable ruling on issues related to “national security and wealth policies,” “we are finished.”

This move reflects another aspect of the Witt Effect—policy makers creating expectations through extreme rhetoric to influence judicial decisions. The market’s pricing of such political risks remains insufficient, which could become a future source of volatility.

Outlook and Risk Warnings

This week marks the official start of the US Q4 earnings season, with major banks like JPMorgan Chase releasing results on Tuesday. The performance of bank net interest income amid policy uncertainty will be a key focus for investors. Meanwhile, important economic data and speeches—including Japan’s November trade balance, US December CPI, and Fed’s Mester—will be released sequentially, further intensifying the Witt Effect.

Amid political uncertainty, geopolitical risks, and changing monetary policy expectations, markets are undergoing deep asset re-pricing. The rise in gold and cryptocurrencies, the depreciation of the dollar, and the relative strength of tech stocks all point to a common logic: investors are using asset allocation to express concerns about future policy environments.