U.S. stocks closed at historic highs on Tuesday, led by gains in the materials, industrial, and financial sectors, as market capital accelerated its flow into previously lagging segments. The S&P 500 index rose 0.6%, marking its third consecutive day of advances, as traders shifted their focus beyond technology stocks. The index's equal-weight counterpart posted an even larger gain of 1.2%. The Nasdaq 100 index closed up 0.9%, while the Dow Jones Industrial Average, representing the old economy, climbed 1%, also settling at a milestone record. "If there is one clear theme, it's rotation," said Michael O'Rourke, Chief Market Strategist at Jonestrading Institutional Services LLC. "Broadly speaking, investors still want exposure to this market, but they are seeking relatively better value in sectors outside of last year's leaders and star performers."
Earlier in the day, weaker-than-expected U.S. services PMI data bolstered hopes for further Federal Reserve rate cuts, propelling major U.S. indices higher. Later this week, additional business activity data and crucial employment figures are scheduled for release. Richmond Fed President Thomas Barkin stated that future monetary policy would require "fine-tuned judgment," noting that interest rates are currently in a neutral range. Concurrently, Fed Governor Stephen Milan indicated that the central bank would need to cut rates by more than one percentage point in 2026.
Goldman Sachs Group's new Chief U.S. Equity Strategist, Ben Snider, forecasted that the stock market is poised for a year of "micro-rotation" in 2026, driven by extreme market concentration and the evolution of artificial intelligence (AI) trading. According to the firm's data, the top ten constituents of the S&P 500 account for 41% of its market capitalization and contributed 53% to the benchmark's gains in 2025. Snider wrote in a client note that as corporate adoption increases, AI-related spending growth is expected to exceed projections, even as overall economic growth slows, which will fuel rotation and "create two-way risks for the broader index."
Meanwhile, Scott Rubner of Citadel Securities noted that this year's "January effect" appears particularly pronounced, with broad-based fund flows and expanding market breadth at the start of the year laying the groundwork for a comprehensive U.S. stock rally. As markets reopened after the holidays, cash linked to pension contributions, year-end bonuses, and discretionary wealth management mandates is rapidly flowing into passive risk assets.
Despite geopolitical tremors following the U.S. military's capture of Venezuelan President Nicolás Maduro over the weekend, Wall Street's reaction has been muted thus far. Some safe-haven assets, notably gold and U.S. Treasuries, edged higher. However, the CBOE Volatility Index (VIX) remained subdued, trading below 16.
For Wall Street bulls aiming to secure another year of positive returns in 2026, significant hurdles remain: persistent trade tensions, signs of economic fatigue, and an AI-themed trade that is far from a sure bet. Yet, supportive factors are also in play. "The bulls are entering 2026 with the backing of fiscal and monetary stimulus," wrote Adam Crisafulli, founder of Vital Knowledge, in a Tuesday morning report. Surveys indicate that a majority of investors expect further stock market gains this year. According to a poll of 590 respondents conducted over the final three weeks of December, 60% believe the S&P 500 could climb by up to 20% in 2026. Fewer than one-third of participants anticipate a decline for the benchmark.
Last year's market pullback and subsequent recovery suggest the potential for further gains. Historically, there have been only four instances where the S&P 500 fell at least 15% and then rebounded to post annual gains similar to those seen in 2025; each time, the following year witnessed strong advances.
According to strategists led by Chris Montagu at Citigroup, equity positioning on U.S. indices declined last week as long positions were unwound and new short positions were established. His team noted that positioning in S&P 500 and Nasdaq futures remains near neutral, posing limited risk.
The Consumer Electronics Show (CES) in Las Vegas this week provided a barometer for the AI trade, with tech companies unveiling business updates and new products. Advanced Micro Devices Inc. (AMD.US) showcased a new chip for enterprise data centers. NVIDIA Corporation's CEO Jensen Huang stated that the company's highly anticipated Rubin processor is expected to be deployed by customers in the second half of the year. Intel Corporation demonstrated laptops based on its new processor design. Sandisk Corp. (SNDK.US) and its peers were among the top performers in the S&P 500 on Tuesday. The stock has surged approximately 47% over the first three trading days of 2026. Western Digital Corp. (WDC.US) and Seagate Technology Holdings PLC (STX.US) also featured prominently on the leaderboard.
In corporate news, following President Maduro's removal over the weekend, oil traders including Trafigura Group are set to discuss with the U.S. government how to resume purchases of Venezuelan crude and supply fuel to the country. Shares of sportswear company Under Armour, Inc. (UA.US) jumped after Fairfax Financial Holdings disclosed a significant stake in the firm.
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