Tech Rally Builds Momentum as Markets Bet on Sustained AI Spending Growth

Semiconductor and storage stocks took center stage today, powered by growing confidence in continued artificial intelligence investment cycles. The catalyst came from Taiwan Semiconductor Manufacturing Co (TSMC), the world’s dominant contract chipmaker, which raised its 2026 capital spending guidance—a signal that major AI infrastructure buildout remains on track.

Market Overview: Broad-Based Gains in Tech

The S&P 500 rose +0.27%, while the Nasdaq 100 climbed +0.46%, extending yesterday’s rally. March E-mini S&P futures are up +0.25%, and March E-mini Nasdaq futures advanced +0.47%. However, higher bond yields acted as a headwind, with the 10-year Treasury yield gaining +2 bp to 4.19%.

The Dow Jones Industrial Average slipped -0.06%, as bond-sensitive sectors faced pressure from rising yields. Overseas markets moved lower, with the Euro Stoxx 50 down -0.42%, Shanghai Composite off -0.26%, and Japan’s Nikkei Stock 225 declining -0.32%.

AI Spending Drives Semiconductor Complex Higher

The semiconductor sector’s strength directly reflects market participants’ confidence in ongoing AI spending commitments. TSMC’s capital expenditure increase signals that tech giants continue deploying massive resources into AI infrastructure—from data center chips to storage solutions.

Top gainers in the semiconductor space included:

• Micron Technology (MU) surged more than +7%, leading S&P 500 and Nasdaq 100 advances
• Lam Research (LRCX) climbed more than +3%
• ASML Holding NV (ASML), Applied Materials (AMAT), Analog Devices (ADI), and Broadcom (AVGO) each gained more than +2%
• Nvidia (NVDA), Seagate Technology Holdings (STX), Marvell Technology (MRVL), and Intel (INTC) each rose more than +1%

This sector-wide strength reflects the market’s conviction that AI spending will remain robust throughout 2026 and beyond.

Earnings Beat Targets; Q4 Growth Outlook Strengthens

The earnings season has delivered early momentum. Among the 28 S&P 500 companies that reported results so far, 89% beat expectations. According to Bloomberg Intelligence, S&P 500 earnings growth is forecast to climb +8.4% in Q4. Excluding the Magnificent Seven mega-cap technology names, earnings growth is still expected to increase +4.6%—suggesting that AI spending benefits are spreading across the broader economy.

Economic Data Provides Unexpected Lift

December manufacturing production unexpectedly rose +0.2% month-over-month, surpassing expectations for a -0.1% decline. Additionally, November manufacturing production was revised upward to +0.3% m/m from the previously reported flat reading. This strength in industrial output provides supporting evidence for continued business investment, including AI-related capital expenditures.

Later today, the January NAHB housing market index is expected to tick up by +1 to 40, though focus remains on broader economic momentum rather than housing-specific indicators.

Energy Sector Faces Political Headwinds

Power and utility stocks faced selling pressure following President Trump’s announcement of an emergency wholesale electricity auction to address rising power costs for technology companies. This policy shift prompted selloffs:

• Talen Energy (TLN) dropped more than -9%
• Constellation Energy (CEG) fell more than -6%
• Vistra (VST) declined more than -5%

Conversely, GE Vernova (GEV) surged more than +6%, with Jeffries noting the company stands to benefit from infrastructure and power grid modernization driven by Trump’s policy direction.

Individual Stock Catalysts Drive Intraday Moves

Several names posted notable moves on analyst upgrades, earnings surprises, or company-specific news:

Gainers:

• Rocket Lab Corp (RKLB) jumped more than +5% after Morgan Stanley upgraded the stock to overweight with a $105 price target
• JPMorgan Chase upgraded AutoNation (AN) to overweight from neutral with a $235 price target, sending shares up more than +3%
• Eaton Corp (ETN) climbed more than +3% after HSBC upgraded to buy with a $400 price target
• PNC Financial Services Group (PNC) gained more than +3% after reporting Q4 non-interest income of $2.34 billion, beating consensus of $2.26 billion
• Dave & Buster’s Entertainment (PLAY) rose more than +3% on a Benchmark Co. upgrade to buy with a $30 price target
• Honeywell International (HON) added more than +1% following a JPMorgan overweight upgrade with a $255 price target

Decliners:

• QXO Inc (QXO) slipped more than -4% after seeking to raise $750 million at $23.80-$24.00 per share, below Thursday’s $25.02 close
• Regions Financial (RF) fell more than -3% after reporting Q4 EPS of 58 cents, below the 62-cent consensus
• State Street (STT) dropped more than -3% despite beating earnings expectations, as management guided for full-year expense growth of 3% to 4%
• Kraft Heinz Co (KHC) declined more than -2% following a Morgan Stanley downgrade to underweight with a $24 price target
• HP Inc (HPQ) fell more than -1% after Barclays downgraded the stock to underweight with an $18 price target

Bond Markets React to Growth Optimism and Inflation Expectations

March 10-year Treasury notes fell 6 ticks, with the 10-year yield climbing +1.8 bp to 4.187%. The strength in equities reduced safe-haven demand for government debt. Additionally, inflation expectations are creeping higher, with the 10-year breakeven inflation rate rising to a 2.25-month high of 2.320%.

European government bond yields also moved higher: the 10-year German bund yield gained +2.5 bp to 2.844%, while the 10-year UK gilt yield advanced +1.8 bp to 4.406%.

ECB Chief Economist Philip Lane reiterated that the bank’s baseline scenario assumes inflation near target for several years, with growth close to potential and low, declining unemployment—leaving no near-term interest rate debate. Swaps are pricing only a 1% probability of a +25 bp ECB rate hike at the February 5 policy meeting.

Federal Reserve Rate Cut Odds Continue to Fade

Markets are now discounting only a 5% probability of a -25 bp rate cut at the FOMC’s January 27-28 meeting, reflecting the strong economic backdrop and persistent inflation concerns. The Supreme Court did not rule on challenges to Trump’s tariffs on Wednesday; the next scheduled opinion dates are next Tuesday and Wednesday.

Earnings Calendar: Financial Sector in Focus

Today’s earnings reporters include BOK Financial Corp (BOKF), M&T Bank Corp (MTB), PNC Financial Services Group Inc (PNC), Regions Financial Corp (RF), and State Street Corp (STT)—primarily financial institutions navigating rising rate environments and strong economic growth.