S&P 500 Rises as AI Stocks and Small Caps Rally on Strong Earnings Outlook

U.S. stock markets closed higher on Monday, led by gains in artificial intelligence-related stocks and a strong rally in small-cap companies, as investor confidence improved on solid earnings expectations and encouraging economic data. The S&P 500 snapped a three-session losing streak, rising 0.54% to finish at 6,976.44, just shy of its recent record high. The Nasdaq Composite gained 0.56% to 23,592.11, while the Dow Jones Industrial Average outperformed with a 1.05% jump to 49,407.66.

Artificial intelligence stocks were a major driver of the rally, with heavyweight technology companies posting solid gains ahead of key earnings reports. Alphabet climbed 1.9% to a record high, and Amazon advanced 1.5%, as investors positioned for quarterly results that could provide further insight into the intensifying AI race. Palantir Technologies, a data analytics firm closely tied to AI adoption, added 0.8% ahead of its earnings release after the market close.

Chipmakers benefiting from AI-driven demand saw particularly strong gains. SanDisk surged 15.4%, while Advanced Micro Devices rose 4% and Micron Technology jumped 5.5%, reflecting optimism about continued demand for semiconductors used in AI infrastructure.

Smaller companies significantly outperformed large-cap stocks, with the Russell 2000 index climbing about 1% on the day and extending its 2026 gains to more than 6%, compared with the S&P 500’s roughly 2% advance so far this year. Investors often interpret strength in small-cap stocks as a sign of confidence in economic growth.

Market sentiment was further supported by improving earnings forecasts. Analysts now expect S&P 500 companies to report nearly 11% earnings growth for the December quarter, up from about 9% estimated at the start of January, according to LSEG. Technology-related companies are contributing the bulk of that growth, reinforcing the sector’s leadership in the current market cycle.

Not all stocks participated in the rally. Walt Disney shares fell 7.4% despite beating earnings expectations, after the company warned of weaker international theme park attendance and softer performance in its TV and film businesses. The energy sector also lagged, with the S&P 500 energy index dropping 2% as oil prices declined following comments from U.S. President Donald Trump suggesting potential de-escalation with Iran.

Lower oil prices helped boost airline stocks, with major carriers including United Airlines, Delta Air Lines, JetBlue, and Southwest Airlines gaining between 4% and 8%. Meanwhile, the CBOE Volatility Index slipped to 16.5, signaling easing market anxiety, even as trading volume remained heavy at over 20 billion shares.

Economic data also played a role, with U.S. factory activity expanding for the first time in a year in January, offering further reassurance about the broader economic outlook.