S&P 500 Closes Near Record as Tech Keeps Rallying: Markets Wrap

(Bloomberg) — Another rally in tech companies after an artificial intelligence-driven rout drove stocks higher ahead of economic data that will help shape the Federal Reserve outlook. Gold topped $5,000. The dollar fell.

Following a surge that added $1 trillion to the S&P 500’s value at the end of last week, the index kept rising to approach its all-time highs. A gauge of chipmakers climbed 1.4% while an ETF focused on software names extended a back-to-back advance to almost 7%. Oracle Corp. jumped 9.6%. Alphabet Inc. embarked on a global bond spree to fund its AI ambitions.

“When markets sell off like certain areas in tech have, there’s often knee-jerk rallies,” said Sameer Samana at Wells Fargo Investment Institute. “Time will tell if we need a retest or if enough value was created.”

Traders are also gearing up for a busy week of economic readings that include the two most-consequential data snapshots: employment and inflation.

The jobs report – due Wednesday – is expected to show payrolls rose 68,000 in January. The unemployment rate is seen steady at 4.4%. The data will also include historical revisions that are anticipated to show a sizable downward adjustment to payrolls in the year through March 2025.

“A so-so jobs report probably won’t have much of an impact, but traders expecting stocks to bounce on weak numbers have to consider the possibility that a choppy stock market may simply treat good news as good and bad news as bad,” said Chris Larkin at E*Trade from Morgan Stanley.

In Friday’s consumer price index, economists will look for more evidence that inflation is on a downward trend. Before that, figures on Tuesday are projected to show solid retail sales.

Action in the Treasury market was fairly muted following an earlier slide driven by news that Chinese regulators were said to be urging banks to curb US government bond exposure amid market risks.

The S&P 500 added 0.5%. The Dow Jones Industrial Average held above 50,000. The Russell 2000 climbed 0.7%. The yield on 10-year Treasuries was little changed at 4.20%. The dollar fell 0.6%.

Bitcoin wavered near $70,000. Oil rose as the US advised ships to steer clear of Iranian waters when navigating the Strait of Hormuz. UK assets bounced from session lows, with Keir Starmer’s cabinet members voicing support for the prime minister. Japanese equities jumped to a record as Prime Minister Sanae Takaichi secured a historic election triumph.

For months, investors have been growing increasingly anxious about how AI will potentially transform the economy. Last week, those concerns suddenly spilled over into the stock market. The culprit was AI startup Anthropic, which released new tools designed to automate work tasks in various industries, sparking fears that the innovations would doom countless businesses.

The tumult left investors questioning some underlying assumptions. Is the economy really strong enough to support another year of double-digit gains? Will AI’s promise of productivity gains instead wreak havoc on entire industries? Are retail traders distorting markets, turning havens into hazards?

The flip side is that there’s little fundamental evidence of deterioration.

US technology stocks have the scope to rally further as the buzz around AI underpins a robust sales outlook, according to Morgan Stanley strategists.

The team led by Michael Wilson said revenue growth expectations for the biggest tech stocks have reached “multi-decade highs,” while valuations have declined after recent market volatility. At the same time, the rout in software stocks has opened up “attractive entry points” in some names.

The technology sector reset was a necessary digestion of prior gains, with the industry projected to record earnings-per-share growth of 32% in 2026, followed by an additional 20% in 2027, according to Sam Stovall at CFRA. That compares with the S&P 500’s projected gains of 13% and 16%, respectively.

“Should these EPS growth estimates continue to hold up, investors will be pleased they stayed the course,” he said.

There seems to be faith that mega-tech companies know what they are doing in pouring so much money into building out the massive data centers, according to veteran Wall Street strategist Louis Navellier.

“There remain doubts as to the timing of the return on the huge investment, as well as the apparent restraint on coming up with the needed power supplies, but we’re already seeing significant job reductions due to the efficiencies of early implementation of AI solutions,” he said.

Markets are in a period of healthy rotation, and near-term skepticism about AI isn’t necessarily causing broader market disruptions at the moment, according to Anthony Saglimbene at Ameriprise.

“At present, big tech fundamentals appear sound,” he said. “As long as fundamental conditions hold and tech surprises are kept to a minimum, current market conditions continue to favor a balanced asset allocation approach.”

The S&P 500 is poised for more gains this year as last week’s volatility is likely to remain brief, according to strategists at RBC Capital Markets.

The team led by Lori Calvasina says the five models they track still argue for “solid gains” in stocks, while noting that historical data on recent drawdowns suggest “it’s possible that this latest bout of weakness has played out for now.” The strategists maintain their 12-month price target of 7,750 points for the S&P 500.

“Fourth quarter earnings season continues to be supportive for US equities,” said David Lefkowitz at UBS Global Wealth Management. “Solid growth, supportive central banks, and AI should be the key drivers of further upside for US stocks. We maintain our June 2026 and December 2026 S&P 500 price targets of 7,300 and 7,700.”

The gauge closed at 6,964.82 Monday.

Chris Senyek at Wolfe Research expects continued volatility. He noted that an area like consumer staples that has done so well this year is quite “overbought” while non-software tech stocks remain “very crowded” not only with institutional investors but retail as well.

“Further systematic selling is likely to continue over the near term,” Senyek said.

Hedge funds piled into short positions on US stocks as concerns about disruption to business models from AI reverberated through markets.

Notional short selling across single stocks last week was the biggest on record in Goldman Sachs Group Inc. data going back to 2016, the bank’s prime brokerage team said in a client note. Short sales outpaced long buys by a magnitude of two-to-one, the team including Vincent Lin said, citing flows from the Jan. 30 to Feb. 5 period.

While software and the broader tech trade have seen selling to start the year, the percentage of stocks in the S&P 500 making new 52-week highs has been expanding, according to Bespoke Investment Group strategists.

“One of the reasons overall market breadth has been so strong is that consumer-staples stocks have caught a huge bid,” they said. “While the S&P 500’s net-new highs breakout is a bullish sign, you don’t really want to see defensives leading a rally.”

While staples retreated on Monday, it has surged 13% in 2026 – compared with a gain of less than 2% in the US equity benchmark.

Most sectors within the S&P 500 have remained positive for the year, and that appears to align well with the rebalancing theme in which leadership was expected to rotate more widely after a period dominated by a very narrow set of winners, according to Brian Levitt and Benjamin Jones at Invesco.

“Periods of rotation can feel uncomfortable, especially when they affect assets that had been powerful performance drivers only weeks earlier,” they said. “Yet these phases often help build the foundation for more durable market advances.”

Meantime, this week’s employment data and CPI report may prove pivotal for the Fed as it balances slowing job growth against lingering inflation risks, according to Jason Pride and Michael Reynolds at Glenmede.

“We’re watching whether early-year price pressures will be contained after strong core inflation in January,” said BlackRock Investment Institute strategists. “The jobs report for January will shed light on whether the ‘no hiring, no firing’ stasis in jobs persists. If so, and inflation proves little changed, we see the Fed leaving rates unchanged at its next meeting.”

To Dave Sekera at Morningstar, if CPI were to come out a lot hotter than expected, it could drive some concern and volatility. But as long as it comes in anywhere close to expectations, its should be a “non-event,” he said.

“Economic data has been almost perfectly Goldilocks since the government re-opened in late November and that needs to continue to help stocks weather rising AI skepticism,” according to Tom Essaye at The Sevens Report.

“The stabilizing labor market should help keep the Fed on track to cut rates once or twice this year, assuming price pressures continue to ease,” said Angelo Kourkafas at Edward Jones. “Lower interest rates should reduce borrowing costs for consumers and businesses, helping support the economy and corporate profits.”

To Torsten Slok at Apollo, the bottom line is that it is very difficult to be bearish on the US economic outlook.

Corporate Highlights:

Microsoft Corp. shares were downgraded for the second time in less than a week as Wall Street grows increasingly wary about the potential disruption software stocks face from artificial intelligence. Meta Platforms Inc. was given a European Union warning over policies that block the use of rival Artificial Intelligence assistants on WhatsApp, raising the possibility of further tensions with the Trump administration over the regulation of US tech companies. While most Americans were transfixed by this year’s Super Bowl proceedings on Sunday night, Elon Musk took to X to proclaim that SpaceX would focus on building out a base on the moon before sending humans to Mars. Kyndryl Holdings Inc., an International Business Machines Corp. spinoff, plunged after the company announced key leadership exits and a review of its accounting practices. Eli Lilly & Co. agreed to buy closely held US biotech Orna Therapeutics Inc. for up $2.4 billion in cash, its second deal in as many days as the company expands its pipeline beyond its well-known blockbuster obesity drug Zepbound. Novo Nordisk A/S said it’s suing Hims & Hers Health Inc. for making knock-offs of its obesity medicines, even as Hims scrapped plans to sell a copycat version of the Wegovy pill. The US Food and Drug Administration said a TV advertisement for Novo Nordisk A/S’s new weight-loss pill included “false or misleading” claims about the drug’s ability to help users shed pounds, adding to the drugmakers’ recent woes. Kroger Co. plans to name Greg Foran as the supermarket chain’s next chief executive officer, according to a person familiar with the matter, as the nation’s largest grocer looks to carve a new path after a failed megadeal and an unexpected exit of its former boss. Converse employees have been instructed to work from home ahead of layoffs and restructuring at the struggling Nike Inc. brand. Apollo Global Management Inc. set a record in its business of making loans, a crucial plank in the firm’s ambition to become one of the largest underwriters on Wall Street. Chevron Corp. acquired a ranch in West Texas whose owner had been waging a legal battle accusing the US energy giant of negligently spilling toxic water and crude oil on the 22,000-acre property. Workday Inc. announced co-founder Aneel Bhusri is returning to head the software company, replacing chief executive officer Carl Eschenbach after the company’s shares have plummeted over the past year. Activist investor HoldCo Asset Management called a truce with two US regional banks and said it now supports KeyCorp’s chief executive officer after previously calling for his ouster. Cleveland-Cliffs Inc. plunged after the US steelmaker said it needed more time to land a deal with South Korea’s POSCO. Deep-water oil rig owner Transocean Ltd. agreed to acquire rival Valaris Ltd. in an all-stock deal valued at $5.8 billion as offshore drilling activity heats up. Newmont Corp. wants Barrick Mining Corp. to address what it says is underperformance at their joint venture mining operations in Nevada before its partner proceeds with an initial public offering of its North American assets. Expand Energy Corp. said Domenic “Nick” Dell’Osso, Jr. stepped down as chief executive officer as the largest US natural gas producer plans to relocate its headquarters to Houston from Oklahoma City in mid-2026. Clothing retailer Eddie Bauer LLC filed for Chapter 11 in what marks the chain’s third trip to bankruptcy court. This time, the plan is to sell as many as possible of its 175 stores — which employ about 2,200 people — and liquidate the rest. What Bloomberg Strategists say…

“Monday’s equity rally continues to smack of short covering, and that coupled with other risks leaves stocks still on shaky ground near-term. Punters’ animal spirits aren’t quite dead yet, but the absence of long-term buyers in the rally suggests they’re waiting for clarity.”

—Alyce Andres, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 rose 0.5% as of 4 p.m. New York time The Nasdaq 100 rose 0.8% The Dow Jones Industrial Average was little changed The MSCI World Index rose 0.9% Bloomberg Magnificent 7 Total Return Index rose 1.1% Philadelphia Stock Exchange Semiconductor Index rose 1.4% IShares Expanded Tech-Software Sector ETF rose 3.2% The Russell 2000 Index rose 0.7% S&P 500 Equal Weighted Index was little changed Oracle rose 9.6% Currencies

The Bloomberg Dollar Spot Index fell 0.6% The euro rose 0.8% to $1.1914 The British pound rose 0.6% to $1.3696 The Japanese yen rose 0.8% to 155.91 per dollar Cryptocurrencies

Bitcoin fell 0.1% to $70,573.51 Ether rose 1.3% to $2,120 Bonds

The yield on 10-year Treasuries was little changed at 4.20% Germany’s 10-year yield was little changed at 2.84% Britain’s 10-year yield advanced one basis point to 4.53% The yield on 2-year Treasuries declined one basis point to 3.49% The yield on 30-year Treasuries was little changed at 4.85% Commodities

West Texas Intermediate crude rose 1.3% to $64.36 a barrel Spot gold rose 2.3% to $5,076.55 an ounce ©2026 Bloomberg L.P.