MW How the stock market's big turnaround on Monday put the S&P 500 back in record territory
By Joy Wiltermuth
Small-caps and other signs of the 'rotation trade' were out in force
Wall Street shook off a few days of weakness to start February with a bang. The S&P 500 index closed just shy of a record high Monday.
U.S. stocks saw a bullish start to February as investors bought the recent dip and extreme tumult in the metals market eased.
The S&P 500 index SPX gained 0.5% on Monday to close at 6,976.44, only fractionally below a record close. It also snapped a three-session losing streak, according to FactSet data. The Dow Jones Industrial Average DJIA rose 1.1%, while the Nasdaq Composite Index COMP ended 0.6% higher.
"It's nice to see the rebound," said Angelo Kourkafas, senior global strategist at Edward Jones. "At the end of the day, the resilience in the market is shining through."
All three major equity indexes started the day lower in premarket action, but turned positive after the open in New York. The latest leg of the rally came despite a decline in shares of Nvidia Corp. (NVDA), Microsoft Corp. $(MSFT)$, Meta Platforms Inc. (META) and several other artificial-intelligence stocks, which have recently faced downward pressure.
"We've seen some skepticism around the AI trade, but [also] a healthy rotation that's coming through," Kourkafas said.
Indeed, small-cap stocks were also a bright spot on Monday, with the Russell 2000 Index RUT gaining 1%. This came despite selling in the roughly $30 trillion Treasury market, which caused yields to climb.
When the benchmark 10-year Treasury yield BX:TMUBMUSD10Y rises, it can hit smaller, debt-ladened companies harder by pushing up borrowing costs. Rates for new mortgages, as well as corporate and U.S. government financings, also can become more costly. The yield of the 10-year was up to 4.28% on Monday, up from roughly 4% in late October.
Kourkafas at Edward Jones pointed to a rare bit of positive news from the manufacturing side of the economy as helping boost the appeal of small-cap stocks and other cyclical parts of the market. On Monday, the Institute for Supply Management's survey of manufacturing jumped to 52.6% for the month of January, up from 47.9% the prior month - the highest since June 2022.
The tone in markets also got a boost from signs of stabilization in gold (GC00) (GCJ26) and silver prices. Silver traded higher on Monday, after Friday's historic plunge sent the metal (SI00) (SIH26) 31% lower into a bear market.
"On average, things are better than worse," said Mark Hackett, chief market strategist at Nationwide's Investment Management Group, adding that the economy still looks healthy. He said that some of the "trickier" corporate earnings are now in the rearview mirror for this season and brief pockets of weakness in equities last month have been bought.
Hackett said that stock-market resilience has been pretty much the only thing many investors have known, especially younger ones who started in the wake of the pandemic. Most pullbacks have been relatively brief, with stocks then returning to record territory. This motivates investors to "buy the dip" - which refers to the tendency to buy stocks when they drop in order to lock in a discount.
Importantly, technical conditions in the stock market lately have been holding up, with the S&P 500 holding above its 50-day moving average of 6,864.80, which could point to further upside strength.
Hackett also noted that appetite for shorting the stock market has been fading, according to activity on popular exchange-traded funds that follow U.S. stock indexes. JPMorgan traced short interest as a share of the outstanding shares of the State Street SPDR S&P 500 ETF Trust SPY and the tech-heavy Invesco QQQ Trust Series I QQQ exchange-traded fund in the below chart.
A look at two popular exchange-traded funds shows appetite for shorting the stock market has been fading in recent years.
"Who the heck is going to short this market when any degree of weakness is aggressively bought?" Hackett asked.
-Joy Wiltermuth
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(END) Dow Jones Newswires
February 02, 2026 16:40 ET (21:40 GMT)
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