Dow closes higher on first day of 2026, still no Santa Claus rally

NEW YORK - The Dow and S&P 500 indexes ended higher on Jan 2, starting 2026 by snapping a four-day losing streak, helped by gains in chip makers Nvidia, Intel and Boeing.

In 2025, the Dow, the S&P 500 and the Nasdaq all notched double-digit gains, their third straight year in the green, a run last seen during 2019-2021.

Chip stocks provided a boost on Jan 2, with the Philadelphia SE Semiconductor index up 4 per cent. Industrials and utilities also gained. Caterpillar and Boeing rose 4.5 per cent and 4.9 per cent, boosting the Dow.

While chip stocks rallied, several market heavyweights such as Apple and Microsoft fell to keep gains in check on the S&P 500 and Nasdaq.

The S&P 500 and the Nasdaq were also pressured by losses in consumer discretionary stocks including Amazon. Tesla also slid 2.6 per cent after annual sales fell for a second year.

The Dow Jones Industrial Average rose 319.10 points, or 0.66 per cent, to 48,382.39, the S&P 500 gained 12.97 points, or 0.19 per cent, to 6,858.47 and the Nasdaq Composite lost 6.36 points, or 0.03 per cent, to 23,235.63.

Mr Joe Mazzola, head of trading and derivatives strategist at Charles Schwab, told Reuters the market is seeing a “buy the dip, sell the rip,” trading mentality - where investors profit from short-term market volatility by timing entry and exit points.

“But I do think that investors might be a little bit more conscious about some of the valuations that they’re paying for some of the AI plays,” he said.

“At the same time when they do get the opportunity to buy in (during) a pull back, they just continue to do that. I don’t see that stopping anytime so.”

Smaller stocks, which have struggled in recent days, also rallied and the Russell 2000 rose 1.1 per cent to snap a four-day streak of declines.

Recent selling had dashed expectations for a “Santa Claus rally” in which markets tend to get a late boost over the last five trading days of December and the first two of January, according to the Stock Trader’s Almanac.

The Federal Reserve’s monetary policy trajectory will set the tone for global markets in 2026, after recent economic data and expectations of a new dovish Fed chair prompted investors to price in further reductions.

“The next Fed chair is probably going to be much more dovish than Jerome Powell. So I would imagine that we actually see in the second half of this year that interest rates go down substantially,” said Mr Dennis Dick, chief market strategist at Stock Trader Network.

“And that’s going to be good for all stocks, not just tech stocks.”

A key highlight for January will be next week’s labour market data, especially after Mr Powell, at the central bank’s December meeting, cautioned against further interest rate cuts until there was more clarity on jobs.

Wall Street had made a stellar comeback in 2025 from April’s lows when Mr Trump’s “Liberation Day” tariffs sparked a meltdown in global markets, sent investors away from US stocks and threatened growth by clouding the interest rate outlook.

Possible tariff surprises from Mr Trump will be on the radar, especially after the White House said he signed a proclamation to delay increases in tariffs for upholstered furniture, kitchen cabinets and vanities for another year.

Shares of furniture retailers Wayfair, Williams-Sonoma and RH ended 6 per cent, 5 per cent and almost 8 per cent higher, respectively.

Advancing issues outnumbered decliners by a 2.01-to-1 ratio on the NYSE. There were 236 new highs and 95 new lows on the NYSE.

On the Nasdaq, 2,978 stocks rose and 1,818 fell as advancing issues outnumbered decliners by a 1.64-to-1 ratio.

The S&P 500 posted 9 new 52-week highs and 9 new lows while the Nasdaq Composite recorded 54 new highs and 79 new lows.

Volume on US exchanges was 15.92 billion shares, compared with the 15.87 billion average for the full session over the last 20 trading days. REUTERS