Tech Powers Stock Gains as Small Caps Rally Anew: Markets Wrap

(Bloomberg) — A rally in big tech spurred a rebound in stocks as a blowout outlook from an artificial-intelligence bellwether rekindled hopes about the longevity of a key bull-market driver while signs of economic strength lifted small caps.

Buyers waded back into high-profile chipmakers after Taiwan Semiconductor Manufacturing Co., Asia’s most valuable company, assuaged concerns about the sustainability of current data-center spending. Nvidia Corp. led gains in megacaps and ASML Holding NV hit a record. Small caps continued to outperform, with the Russell 2000 beating the S&P 500 for a 10th straight session — the longest streak since 1990.

“Technology stocks had looked vulnerable in recent weeks as investors rotated away from megacap names and into more cyclical areas of the market,” said Fawad Razaqzada Forex.com. “TSMC’s update, though, appears to have stabilized that ‘rotation’ rather than reversed it outright.”

That balance between tech optimism and broader participation is likely to remain a defining feature in the weeks ahead, he noted.

A run of stronger-than-expected economic data has helped shape a growing sense that conditions are improving, with investors chasing riskier parts of the market that typically benefit in that scenario.

Bonds fell as data Thursday showed a resilient labor market, with jobless claims unexpectedly sliding to the lowest since November. New York state factory activity expanded, while a gauge of prices received dropped to an almost one-year low.

Federal Reserve Bank of Chicago President Austan Goolsbee said the central bank’s main priority should be to tame inflation, as the labor market shows signs of stabilizing.

The S&P 500 added 0.7% to around 6,975. The Nasdaq 100 climbed 1.1%. The Russell 2000 index of small firms rose 1.2%. The yield on 10-year Treasuries advanced two basis points to 4.16%. A dollar gauge was little changed.

Oil sank after US President Donald Trump signaled he may hold off on attacking Iran for now. Silver pulled back from a record high as investors took profits after a blistering rally and as the US refrained from imposing import tariffs on critical minerals.

Thursday’s action suggests a bit of “bargain hunting” – especially in the tech space after the TSMC news as well as the pullback seen over the past couple of weeks, according to Kenny Polcari at SlateStone Wealth.

“If earnings continue to beat expectations and economic data remains supportive, the likely path remains advance, backfill, then advance again,” he noted.

This earnings season will give investors confidence in the durability of earnings growth, which is a key driver for market returns over the next 12 months,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

“We maintain our S&P 500 year-end target at 7,700 and recommend under-allocated investors add exposure to our preferred areas,” she said.

While stocks are bouncing as the entire technology sector is getting a boost, there is growing evidence that the not only are we seeing some “rotation” between different sectors in the marketplace, but we’re also seeing some of that rotation within the tech sector, said Matt Maley at Miller Tabak.

“In other words, investors seem to be a lot more confident that chip stocks can continue to grow their profits while they’re not so sure that the buyers of all of these chips — the hyperscalers — will see the same kind of profit growth,” Maley said.

As the hyperscalers keep buying chips, it obviously helps the profits of those companies, he noted. However, if the cost of buying those chips does not subside, the hyperscalers are going to have a tough time increasing their profits especially since the prices they are charging for the end products are not moving up.

A strong macro environment in 2026, supported by easier monetary conditions and robust fiscal stimulus across major economies, is likely to favor cross-regional performance, according to Magdalena Ocampo at Principal Asset Management.

“AI, which has fueled US large-cap tech gains, faces greater scrutiny as investors shift focus from aggressive AI-related spending to profitability,” she said. “While US tech allocation remains important, it may be prudent for investors to diversify into regions offering direct or indirect AI exposure at more attractive valuations and benefiting from supportive policy tailwinds.”

Ocampo also notes that AI reinforces the importance of maintaining US exposure given its tech leadership. Still, concerns over aggressive AI-driven spending and high valuations heighten pressure for companies to deliver on earnings.

“Given US equity market concentration, investors should seek diversification,” she said.

Corporate Highlights:

Taiwan Semiconductor Manufacturing Co. is earmarking as much as $56 billion in capital spending for 2026, a stronger-than-anticipated projection that signals its confidence in the longevity of the global AI boom. OpenAI is looking to bolster its US hardware supply chain and find partners for a push into consumer devices, robotics and cloud data centers, part of a major product expansion planned for the coming years. Tight memory chip supplies will constrain the number of US export licenses for Nvidia Corp. to sell its H200 artificial intelligence processors to Chinese customers, according to the top Republican on the House China committee, citing terms of a Commerce Department rule issued this week. Goldman Sachs Group Inc. blew through expectations for equities-trading revenue, posting an all-time Wall Street record of $4.31 billion in the final three months of last year. Goldman Sachs and Wells Fargo & Co. are tapping the US high-grade bond market on Thursday, an expected rush of debt offerings from big Wall Street firms after releasing fourth-quarter results. Morgan Stanley’s debt bankers increased revenue 93% in the fourth quarter, by far the biggest jump on Wall Street and capping a record year for that business. BlackRock Inc. pulled in $342 billion of total client cash in the fourth quarter, pushing the firm to a record $14 trillion of assets as it integrates a string of recent acquisitions to become a force in private markets. BlackRock has raised $12.5 billion as part of a partnership with Microsoft Corp. to bankroll data centers and energy infrastructure, advancing its efforts to cash in on the artificial intelligence boom. Carlyle Group Inc.’s wealth business has nearly doubled since Harvey Schwartz became chief executive officer in 2023 and is on track to account for some 20% of the firm’s capital flows. A judge turned back Amazon.com Inc.’s initial challenge to Saks Global Enterprises’ foray into Chapter 11, by approving short-term financing for the bankruptcy. A judge refused to fast track Paramount Skydance Corp.’s lawsuit accusing directors of Warner Bros. Discovery Inc. of misleading investors about a more than $82.7 billion buyout bid from Netflix Inc. Boston Scientific Corp. agreed to buy medical device maker Penumbra Inc. in a deal valued at more than $14 billion to expand in the treatment of blood clots and stroke. Talen Energy Corp. agreed to buy three natural gas power plants from Energy Capital Partners for $3.5 billion as power producers race to snap up generators with the AI boom driving up electric demand. The $8.75 billion debt financing tied to the buyout of medical-device maker Hologic Inc. has been widely considered the leveraged loan market’s first big test of the year. The final results sent a clear signal that demand for risky debt is strong. Verizon Communications Inc. said it would issue $20 credits to customers affected by a widespread service outage on Wednesday, which it attributed to a “software issue.” A US judge ruled Equinor ASA can resume building its multibillion-dollar wind project near New York, marking the second time this week a federal court has blocked the Trump administration from enforcing a halt on offshore developments Mastercard Inc., Visa Inc. and UK fintech Revolut Ltd. lost a lawsuit with the UK regulator over its plans to usher in a cap on cross-border card fees. Spotify Technology SA is raising the price of its premium subscription service by 8% in an effort to achieve sustained profitability. Ashmore Group Plc’s first quarterly net inflows since 2021 signaled a potential reversal of fortune for the emerging-markets-focused asset manager that’s seen persistent client redemptions in recent years. UniCredit SpA said that recent media reports about its interest in potentially buying a stake in rival Banca Monte dei Paschi di Siena SpA were “unjustified.” Richemont’s customers splurged on its watches and Cartier jewelry over the holidays particularly in the US, even as wider concerns about the luxury market remain. Some of the main moves in markets:

Stocks

The S&P 500 rose 0.7% as of 12:24 p.m. New York time The Nasdaq 100 rose 1.1% The Dow Jones Industrial Average rose 0.8% The MSCI World Index rose 0.5% Bloomberg Magnificent 7 Total Return Index rose 0.7% The Russell 2000 Index rose 1.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro fell 0.3% to $1.1607 The British pound fell 0.4% to $1.3385 The Japanese yen was little changed at 158.49 per dollar Cryptocurrencies

Bitcoin fell 1% to $96,535.43 Ether fell 1.5% to $3,322.39 Bonds

The yield on 10-year Treasuries advanced two basis points to 4.16% Germany’s 10-year yield was little changed at 2.82% Britain’s 10-year yield advanced five basis points to 4.39% The yield on 2-year Treasuries advanced four basis points to 3.55% The yield on 30-year Treasuries was little changed at 4.79% Commodities

West Texas Intermediate crude fell 4.9% to $58.98 a barrel Spot gold fell 0.3% to $4,613.03 an ounce –With assistance from Lu Wang.

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