US Stocks Climb to Start 2026 and Revive Hopes for Santa Rally

US stocks opened higher on the first trading day of 2026, with futures for the S&P 500 and Nasdaq-100 rising by 0.6% and 1.1%, respectively according to market data. Tech stocks led the gains, with Nvidia and Palantir Technologies both rising in the premarket according to CNBC. The S&P 500 and Nasdaq Composite rose 16.4% and 20%, respectively, in 2025 according to the report.

The rally came as investors continued to pile into the AI trade, which was a major driver of market gains in 2025 according to market analysis. Deutsche Bank strategists noted that the year's gains were driven by economic growth, optimism around AI, and central bank rate cuts according to analysts. However, the gains were not without volatility, particularly in April when the Liberation Day tariff announcements caused the S&P 500 to drop sharply according to market reports.

Wall Street strategists are optimistic about the outlook for 2026. According to a CNBC survey, the average target for the S&P 500 is 7,629, which implies upside of 11.4% according to market data. Analysts are watching for continued momentum in the AI sector, with Nvidia and other tech stocks expected to play a key role according to analysts.

Why Did This Happen?

The market's strong start to 2026 was driven by a combination of factors. Tech stocks, particularly those with exposure to artificial intelligence, continued to benefit from investor enthusiasm. Nvidia and Palantir Technologies, both of which had strong performances in 2025, saw further gains in the premarket according to market data.

The S&P 500 and Nasdaq Composite both posted their third consecutive annual advance in 2025, with the S&P 500 rising 16.4% and the Nasdaq Composite gaining 20% according to market reports. The gains were supported by continued economic growth and optimism around AI, as well as the expectation of more central bank rate cuts according to analysts.

However, the gains were not without volatility. The Liberation Day tariff announcements in April 2025 caused the S&P 500 to experience one of the largest two-day slumps since WWII according to market analysis. Despite this, Wall Street strategists remain optimistic about the outlook for 2026.

What Are Analysts Watching Next?

Analysts are closely watching the performance of the AI sector in 2026, with tech stocks expected to continue playing a key role. Nvidia, in particular, is under the spotlight following its $20 billion deal with Groq to license the AI inferencing chip company's technology according to Seeking Alpha.

The deal is seen as a strategic move to strengthen Nvidia's position in the market for AI chips. The company has also launched a new class of GPU called the Rubin CPX, designed for "massive-context processing" and potentially more affordable than its other GPUs according to Barron's.

In addition to US markets, Asian markets also saw strong gains. The KOSPI in South Korea hit a record high of 4,309.63 on the first trading day of 2026, driven by a chip sector rally according to Yonhap News. Samsung and other tech stocks rose, reflecting broader optimism about the sector according to Yonhap News.

Chinese AI chipmaker Shanghai Biren also had a strong debut on the Hong Kong Stock Exchange, with its shares surging nearly 120% according to Business Insider. The company raised 5.58 billion Hong Kong dollars in its IPO, underscoring the strong appetite for AI-related investments in 2026 according to Business Insider.

How Do These Trends Affect Investors?

Investors are likely to continue focusing on the AI and tech sectors in 2026, given the continued momentum. The strong performance of these sectors in 2025, along with the expectation of more gains in 2026, supports this view according to market analysis.

The market's performance in 2025 was driven by economic growth, AI optimism, and central bank rate cuts according to analysts. However, there were periods of volatility, such as the Liberation Day tariff announcements in April 2025 according to market data.

For investors, the key will be to balance exposure to high-growth sectors like AI with the need to manage risk, especially in a market that can be subject to sharp moves based on macroeconomic and policy developments according to market experts.

Overall, the market's strong start to 2026 suggests that the Santa rally may be back on track, with investors showing renewed optimism about the outlook for the year according to MarketWatch live coverage.