The U.S. stock market kicked off 2026 on a positive note Friday, with the S&P 500 snapping a three-year streak of negative first-day returns as artificial intelligence stocks led a broad-based rally fueled by fresh catalysts from Asia.

The benchmark S&P 500 closed up 0.19% at 6,858.47, while the Dow Jones Industrial Average surged 319 points, or 0.66%, to settle at 48,382.39. The tech-heavy Nasdaq Composite finished essentially flat, dipping just 0.03% to 23,235.63.

AI Stocks Lead the Charge

Semiconductor and AI-related stocks dominated the gainers list, propelled by overnight developments in Asia that reignited enthusiasm for the artificial intelligence trade:

  • Nvidia, Broadcom, and Taiwan Semiconductor all posted significant gains
  • Sandisk, Micron, and Western Digital topped the session's best performers
  • Intel and Constellation Energy also joined the rally

The gains were sparked by news of two AI-focused IPOs in Asia and a research paper from China's DeepSeek detailing more efficient methods for AI development, suggesting the technology's growth trajectory remains firmly intact.

Small Caps Outperform

Perhaps the most notable development was the outperformance of small-cap stocks. The Russell 2000 jumped 1.1% in Friday's session, significantly outpacing the broader market. This rotation could signal a broadening of the market rally beyond the mega-cap tech names that dominated 2025.

Tesla Disappoints, Tariff Relief Lifts Retailers

Not all stocks participated in the rally. Tesla shares fell after the electric vehicle maker reported fourth-quarter deliveries that missed analyst expectations. Other Magnificent Seven members Amazon and Microsoft also slid, with the Bloomberg gauge of these mega-cap tech stocks declining roughly 1%.

On the flip side, home goods retailers benefited from a New Year's Eve announcement by President Donald Trump postponing tariff increases on upholstered furniture, kitchen cabinets, and vanities for a year:

  • Wayfair jumped approximately 6%
  • RH (Restoration Hardware) climbed roughly 8%

Strategists Eye Double-Digit Returns for 2026

Wall Street's outlook for the year ahead remains decidedly bullish. According to the CNBC Market Strategist Survey, the average S&P 500 target for 2026 is 7,629, implying upside of 11.4% from current levels.

"Every analyst polled, from those at major global banks to smaller firms, predicted that the S&P 500 will rally, with the consensus of a 9% increase for the year."

— Bloomberg survey of Wall Street strategists

Deutsche Bank attributed the positive outlook to "continued global growth, ongoing optimism around AI's potential, and further central bank rate cuts." The AI boom that fueled much of 2025's gains is expected to remain a dominant market theme throughout the new year.

Commodities Start 2026 Strong

The precious metals sector continued its momentum from a stellar 2025. Gold and silver both advanced on Friday, building on their best annual performances since 1979. Aluminum also crossed the $3,000 per ton threshold for the first time since 2022.

Meanwhile, consumers are benefiting from lower fuel costs. AAA reported that the average price at the pump has fallen to $2.83 per gallon, down from $3.06 a year earlier, following crude oil's biggest annual decline since 2020.

What This Means for Investors

Friday's session offered several takeaways for investors positioning their portfolios for 2026:

  • AI remains the market's dominant theme — Fresh catalysts continue to emerge, keeping the sector in focus
  • Breadth may be improving — Small-cap outperformance suggests the rally could broaden beyond mega-caps
  • Tariff uncertainty persists — While some sectors got relief, trade policy remains a wildcard
  • Rate cuts are expected — Central bank easing could provide additional tailwinds

After back-to-back years of 20%+ gains for the Nasdaq and 16%+ for the S&P 500, some caution is warranted. Bank of America projects a more modest 3.7% rise for the S&P 500, noting the market is "balanced on a knife edge" between weak labor data and consumer strength.

Still, with every major Wall Street strategist predicting gains, the consensus view heading into 2026 is clear: despite high valuations and potential headwinds, the bull market has room to run.