Dow Crosses 49,000 as S&P 500 Hits Record: 2026 Rally Begins

The 2026 bull market is off to a blazing start. The Dow Jones Industrial Average crossed 49,000 for the first time on Tuesday, while the S&P 500 closed at a fresh all-time high of 6,944.82.

It's only January 7, and we're already setting records.

Tuesday's Rally

The numbers:

Dow Jones: +484.90 points (+0.99%) to 49,462.08
S&P 500: +0.62% to 6,944.82 (record close)
Nasdaq Composite: +0.65% to 23,547.17

The rally extended the Santa Claus momentum that carried into the new year, with tech stocks leading the charge for the third consecutive session.

What's Driving the Rally

Several factors are converging to push markets higher:

Fed Expectations: Markets are pricing in two to three rate cuts in the first half of 2026. Mark Zandi of Moody's Analytics said he expects the Fed to cut three times in H1, providing a tailwind for equities.

CES Momentum: Nvidia, Intel, and other tech giants announced significant products at CES 2026, reinforcing the AI growth narrative that drove 2024 and 2025 returns.

Strong Corporate Profits: Q4 2025 earnings season begins next week, with analysts expecting continued growth despite economic uncertainty.

Money on the Sidelines: Record levels of money market assets suggest significant firepower remains available for equity deployment.

Third Consecutive Year of Double-Digit Returns

If 2026 continues this trajectory, the S&P 500 could post its fourth consecutive year of strong returns. The index gained 25% in 2024 and another 23% in 2025.

Historically, multi-year rallies of this magnitude are rare. But they're not unprecedented—the late 1990s tech boom delivered five consecutive years of 20%+ returns before the dot-com crash.

Global Markets Join the Party

The rally isn't limited to US markets. Global stocks reached all-time highs on a four-day winning streak before pulling back slightly in Asian trading Wednesday:

MSCI World Index: Record high
European Stoxx 600: Multi-year highs
Japan Nikkei: Near 40,000

Goldman Sachs analysts project China's MSCI Index could climb 20% this year, adding fuel to the global rally.

Sector Performance

Tech continues to lead, but the rally is broadening:

Winners:

Semiconductors: Nvidia, AMD, Intel rallying on CES announcements
Financials: JPMorgan, Goldman benefiting from rate outlook
Industrials: Caterpillar, Boeing gaining on economic optimism

Laggards:

Energy: Oil price decline weighing on sector
Utilities: Rising rates typically pressure dividend stocks
Healthcare: Political uncertainty around drug pricing

Valuation Concerns

Not everyone is celebrating. The S&P 500 trades at approximately 22x forward earnings—well above the 10-year average of 18x.

Bears argue:

Valuations leave little room for disappointment
Rate cuts priced in could fail to materialize
Geopolitical risks remain elevated
Consumer spending may slow

Bulls counter that AI-driven productivity gains justify premium multiples and that earnings growth will catch up to valuations.

Fed Watch

Fed Chair Powell's testimony later this month will be crucial. Markets are sensitive to any hints about the rate path.

Kalshi prediction markets show Hassett and Warsh neck-and-neck to replace Powell when his term ends—a wildcard that could influence 2026 monetary policy.

What's Next

Wednesday brings jobs data that could test the rally's resilience. Futures traded flat overnight as investors digested Tuesday's gains.

Earnings season kicks into high gear next week with bank results. JPMorgan, Goldman Sachs, and Morgan Stanley will set the tone for the quarter.

The Bottom Line

Enjoy the rally, but stay disciplined. Record highs are a great problem to have, but they also mean there's nowhere to go but down if sentiment shifts.

The 2026 bull case remains intact, but watch for signs of exhaustion as indices stretch to new heights.

Markets continue Wednesday with pre-market activity showing modest profit-taking after Tuesday's record session.