US STOCKS-S&P 500 rallies to record high territory; small caps jump

Updates with afternoon trading

By Noel Randewich and Pranav Kashyap

Feb 2 (Reuters) - The S&P 500 .SPX rallied to record-high territory on Monday, lifted by gains in chipmakers and other companies related to artificial intelligence, while smaller companies also rose sharply.

The Russell 2000 index .RUT jumped 1.6%, with the small-cap index significantly outperforming the S&P 500 and Nasdaq .IXIC so far in 2026.

Alphabet GOOGL.O and Amazon AMZN.O each rose more than 1% ahead of their quarterly reports later this week that will give investors an additional glimpse of the race to dominate AI technology.

AI-related data firm Palantir PLTR.O climbed 1.6% ahead of its quarterly report after the bell.

Chipmakers benefiting from AI-related demand for their components also rallied. SanDisk SNDK.O surged 15%, while Advanced Micro Devices AMD.O and Micron Technology MU.O each added about 5%.

It was the S&P 500's first gain in three sessions following recent worries about pricey valuations of technology companies whose shares have soared in recent years on optimism about AI.

The S&P 500 is up about 2% in 2026, lagging the Russell 2000's nearly 7% rally.

Investors often view gains in small-cap stocks as a reflection of confidence in the economy.

"The fundamentals are good and earnings are strong. We have positive surprises both for revenues and earnings, pretty much across the board," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Analysts expect S&P 500 companies to have grown their earnings nearly 11% in the December quarter, up from an estimate of about 9% at the start of January, according to LSEG. Technology-related companies are driving most of that growth.

Walt Disney DIS.N fell 5.3% on Monday after it posted quarterly earnings above Wall Street expectations but warned of a decline in international visitors to its U.S. theme parks and a slump in earnings at its TV and film division.

The S&P 500 was up 0.70% at 6,987.77 points, on track to notch a record-high close.

The Nasdaq gained 0.91% to 23,674.32 points. The Dow Jones Industrial Average was up 1.04% at 49,403.02 points.

U.S. factory activity grew for the first time in a year in January, PMI data showed.

The CBOE VIX .VIX, a volatility index also known as Wall Street's "fear gauge," dropped 1.3 points to 16.2 after touching a near two-week high earlier in the session.

The S&P 500 energy sector index .SPNY dropped 1.4% as oil prices slid. U.S. President Donald Trump said Iran was "seriously talking" with Washington, comments that hinted at de-escalation and eased fears of supply disruptions.

Lower energy prices boosted airline shares. United Airlines UAL.O, JetBlue JBLU.O, Delta Air Lines DAL.N and Southwest LUV.N rose between 4% and 7% each.

The House of Representatives took up legislation to lift a partial government shutdown entered on Saturday, with a final vote expected on Tuesday.

The Bureau of Labor Statistics said the closely watched employment report for January would not be released on Friday due to the partial shutdown.

Advancing issues outnumbered falling ones within the S&P 500 .AD.SPX by a 1.3-to-one ratio.

The S&P 500 posted 28 new highs and 8 new lows; the Nasdaq recorded 139 new highs and 186 new lows.

(Reporting by Pranav Kashyap and Twesha Dikshit in Bengaluru, and by Noel Randewich in San Francisco; Editing by Shinjini Ganguli, Shilpi Majumdar and David Gregorio)

((noel.randewich@thomsonreuters.com))