S&P 500 flirts with record high; chipmakers and small caps jump

By Noel Randewich and Pranav Kashyap Feb 2 (Reuters) – The S&P 500 closed higher on Monday, lifted by gains in chipmakers and other companies related to artificial intelligence, while smaller companies also rose sharply. The Russell 2000 index jumped about 1%, with the small-cap index significantly outperforming the S&P 500 and Nasdaq so far in 2026. Alphabet rose 1.9% to a record high and Amazon added 1.5%. Both companies are set to report quarterly results this week, giving investors an additional glimpse of the race to dominate AI technology. AI-related data firm Palantir climbed 0.8% ahead of its quarterly report after the bell. Chipmakers benefiting from AI-related demand for their components also rallied. SanDisk surged 15.4%, while Advanced Micro Devices rose 4% and Micron Technology added 5.5%. It was the S&P 500's first gain in three sessions following recent worries about pricey valuations of technology companies whose shares have soared in recent years on optimism about AI. The S&P 500 is up about 2% in 2026, lagging the Russell 2000's more than 6% rally. Investors often view gains in small-cap stocks as a reflection of confidence in the economy. "The fundamentals are good and earnings are strong. We have positive surprises both for revenues and earnings, pretty much across the board," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. Analysts expect S&P 500 companies to have grown their earnings nearly 11% in the December quarter, up from an estimate of about 9% at the start of January, according to LSEG. Technology-related companies are driving most of that growth. Walt Disney tumbled 7.4%, despite posting quarterly earnings above Wall Street expectations, as it warned of a decline in international visitors to its U.S. theme parks and a slump in earnings at its TV and film division. The S&P 500 climbed 0.54% to end the session at 6,976.44 points, just short of its record high close of 6,978.60 last Tuesday. The Nasdaq gained 0.56% to 23,592.11 points, while the Dow Jones Industrial Average rose 1.05% to 49,407.66 points. Volume on U.S. exchanges was heavy, with 20.1 billion shares traded, compared to an average of 19.4 billion shares over the previous 20 sessions. U.S. factory activity grew for the first time in a year in January, PMI data showed. The CBOE VIX, a volatility index also known as Wall Street's "fear gauge," dropped 1 point to 16.5. During the session, it touched a near two-week high. The S&P 500 energy sector index dropped 2% as oil prices slid. U.S. President Donald Trump said Iran was "seriously talking" with Washington, comments that hinted at de-escalation and eased fears of supply disruptions. Lower energy prices boosted airline shares. United Airlines, JetBlue, Delta Air Lines and Southwest all rallied between 4% and 8%.  The House of Representatives took up legislation to lift a partial government shutdown that began on Saturday, with a final vote expected on Tuesday. The Bureau of Labor Statistics said the closely watched employment report for January would not be released on Friday due to the partial shutdown. Advancing issues outnumbered falling ones within the S&P 500 by a 1.4-to-one ratio. The S&P 500 posted 30 new highs and 9 new lows; the Nasdaq recorded 160 new highs and 217 new lows. (Reporting by Pranav Kashyap and Twesha Dikshit in Bengaluru, and by Noel Randewich in San Francisco; Editing by Shinjini Ganguli, Shilpi Majumdar and David Gregorio)

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