Wall Street closed at another record high on Tuesday, continuing an upward trend fueled by investor optimism about artificial intelligence (AI) and expectations of a more accommodative monetary policy from the Federal Reserve.
The S&P 500 index ended the session up 0.6%, surpassing its previous late-December closing record. Meanwhile, the tech-heavy Nasdaq 100 index climbed 0.9%, and the Russell 2000 index, which tracks small-cap stocks, gained 1.4%.
Investors largely shrugged off geopolitical tensions in Venezuela, extending a rally that has now entered its third consecutive year. The surge remains driven by strong demand for AI-related stocks, as the technology continues to dominate market narratives.
Additionally, a weaker-than-expected U.S. services PMI reading on Tuesday bolstered hopes for potential interest rate cuts. Investors are now focused on upcoming economic data related to business activity and the labor market, expected later this week.
David Lefkowitz, Head of U.S. Equities at UBS Global Wealth Management, noted in a recent memo: “Despite strong performance over the past three years, we believe this bull market still has room to grow.” UBS has set its year-end target for the S&P 500 at 7,700 points, representing an 11% increase from current levels.
AI Continues to Dominate
Artificial intelligence remains a central focus of market discussions, following a wave of updates from major chipmakers at the CES trade show in Las Vegas earlier this week. Among the tech sector’s winners on Tuesday were Amazon, Micron Technology, and Microsoft.
Colette Kress, Chief Financial Officer of Nvidia, highlighted the company’s optimistic revenue outlook, which has grown even brighter due to strong demand for AI-related products.
On a broader scale, record-high cash reserves in money market funds—currently at $7.6 trillion—support the argument that U.S. stocks tend to perform well in January, according to Scott Rubner, Head of Equities and Equity Derivatives Strategy at Citadel Securities.
Mixed Market Movements
Gold rose by 1%, following a broader rally in precious metals, while silver surged by 6%. However, Brent crude oil erased earlier gains, falling 2%. Meanwhile, U.S. Treasury yields ticked higher, accompanied by a slight rise in the U.S. dollar.
Positive Outlook for U.S. Markets
The outlook for the S&P 500 remains strong. A recent survey by Markets Pulse revealed that 60% of 590 participants expect the index to rise by up to 20% in 2026. Less than one-third of respondents anticipated losses, while only 10% foresaw gains exceeding 20%.
The S&P 500’s 14-day Relative Strength Index (RSI) also suggests that U.S. equities still have room to climb, unlike other regions that have entered overbought territory.
Diversifying Investment Exposure
Despite the ongoing rally, some investors are diversifying their portfolios. Last week, U.S. equity positions saw a reduction, with long positions being sold and new short positions being established, according to Citigroup strategists.
Qian Wang, Head of Global Capital Markets Research at Vanguard, wrote in a note: “We expect U.S. interest rates to remain higher than consensus estimates and above inflation for an extended period. This makes fixed-income instruments attractive, even beyond their diversification benefits for investment portfolios.”
Brendan Fagan, a foreign exchange strategist at Bloomberg Markets Live, added that January could test the narrative of declining bond volatility. “Interest rate movements suggest that monetary policy risks have largely been neutralized. However, falling bond volatility remains a cornerstone of the equity rally, particularly for rate-sensitive tech stocks,” Fagan explained.
↔ 
↔ 
↔ 
↔ 
↔ 
↔ 
↔ 
↔ 
↔ 
↔ 
→ 
→ 
→ 
→ 
→ 
→ 
→ 
