A slew of data showing the US economy is holding up drove stocks higher, with the market also gaining amid easing jitters around artificial-intelligence disruption. Bonds retreated. Oil jumped.
About 350 shares in the S&P 500 climbed, with the US equity benchmark up nearly 1%. Following a tech selloff fueled by worries over the outlook for AI, investors are looking for signs of a bottom in the industry that’s powered the bull market. A key gauge of chipmakers jumped 1.7%. A closely watched exchange-traded fund tracking software firms advanced 1.6%.
Wall Street’s worries around AI shifted abruptly in recent weeks from skepticism that hyperscalers can monetize their heavy spending into practical use cases to concern that it is sophisticated enough to threaten business models beyond the traditional tech sphere. The sentiment whiplash has spurred sharp rotations and volatility within the stock market.
The software stock rout is likely “overdone” as that was a largely knee-jerk reaction, with investors trying to figure out the winners and losers from AI, according to Paul Stanley at Granite Bay Wealth Management.
“Figuring out the winners and losers in AI is likely to be a center theme in 2026,” he said. “While AI is very promising, investors should not assume that all companies will win on the AI front.”
Equities also got a lift from data showing US industrial production climbed in January by the most in nearly a year, fueled by healthy increases in utility and manufacturing output. Orders for business equipment rose in December by more than projected while housing starts hit a five-month high.
Later Wednesday, the Federal Reserve will release minutes of its January policy meeting, at which central bankers kept interest rates unchanged after three straight reductions at the tail end of 2025.
“In the context of a data-dependent Committee, the incoming economic data justified last month’s pause on the journey to neutral,” said Ian Lyngen at BMO Capital Markets. “The open question is: how high is the bar to resume rate cuts? The minutes should provide some clarity in this regard.”
The S&P 500 rose to around 6,900. A gauge of tech megacaps added 1%. The Russell 2000 index of small firms climbed 1.1%. The yield on 10-year Treasuries advanced one basis point to 4.07%. The dollar gained 0.3%.
Oil rallied as traders weighed whether talks between the US and Iran will be enough to avert conflict, following a report that American military intervention could come sooner than expected. Gold tops $5,000.
Despite Wednesday’s equity gains, the S&P 500 has been struggling to breach the 7,000 milestone since it first made its push toward that level back in October.
“US stock indices have regained their upside momentum,” said David Morrison at Trade Nation. “But will this prove strong enough to keep buyers engaged, and protracted enough to drive the S&P 500 above key resistance at 7,000?”
Big tech carried the market over the past three years, and sustained broadening in the market’s sector participation is extremely important for the overall health of the bull market, noted Stanley at Granite Bay Wealth Management.
“We view the stock market as currently being in a ‘shaken, not stirred’ state,” said Craig Johnson at Piper Sandler. “Investors need to embrace the rotation as this year shapes up to be more of a ‘stock picker’s market’.”
Bank of America Corp. clients dumped US equities last week, with single-stock outflows reaching $8.3 billion — the third highest since records began in 2008.
There were outflows in nine of the 11 sectors, led by financials and consumer staples. Industrials, tech and consumer discretionary also saw large outflows.
As market structure continues to be dominated by CTAs, fund flows, and an increasing share of retail investors, Chris Senyek at Wolfe Research believes volatility is likely to continue over the near-term, especially given the heightened sensitivity of stocks to AI disruption and other headline risk.
“One of the most frequently asked questions we’ve received recently from investors has been: What changes the market’s view on AI disruption?,” he said. “With hyperscaler capital expenditures growing at a breakneck pace, we see bottlenecks in data center buildout likely emerging over the coming quarters.”
Whether these bottlenecks are related to power generation, material costs, or regulatory hurdles, a cut/delay in spending would likely serve as a positive catalyst to areas of the market that have seen downward pressure due to AI concerns, namely software stocks, he said.
“Investors should review current exposures to US technology and communication services and consider hedging or diversifying exposures that are above benchmark levels,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
In such case, she says investors should consider diversifying toward preferred areas of the market where we see superior risk-reward, including industrials, banks, health care, utilities, and consumer discretionary.
Meantime, the highly-anticipated IPO boom may take a little longer to materialize as the market for new issuances limped into a seasonal quiet period.
Postponed listings from broker Clear Street Group Inc. and Blackstone Inc.-backed Liftoff Mobile Inc. and broader stock market volatility left a sour taste in growth investors’ mouths as the window for initial public offerings before annual audits came to an end last week. The jolt of delayed deals paired with choppy performances across the class of 2026 kept a lid on what’s been the busiest start to a year since the go-go days of 2021.
Also capturing Wall Street’s attention is the upcoming options expiry later this week.
The US listed-options market is set for $3 trillion of contracts by notional value to roll off on Friday, the largest ever for an expiration date in February, according to data from Citigroup Inc.