US STOCKS-Wall Street targets record highs on tariff relief, upbeat data

By David French and Pranav Kashyap

Jan 22 (Reuters) - Wall Street's main indexes climbed on Thursday, heading back toward record highs on buying tied to the rescinding of tariff threats on European allies by U.S. President Donald Trump and data highlighting the resilience of the American economy.

The gains came the day after the S&P 500's .SPX biggest one-day percentage gain in two months, when Trump stepped back from imposing tariffs as leverage to seize Greenland and said the framework of a deal to end a dispute over the Danish territory was in sight.

On Tuesday, Trump's tariff threats sent shivers through global markets, with all three U.S. stock benchmarks posting their largest daily drops in three months. Investors quickly returned to stock markets after Trump's Wednesday U-turn.

"It's very weird to wake up every day as a money manager and you do not know whether it is Christmas morning or Friday the 13th," said Gregg Abella, CEO at Investment Partners Asset Management.

Abella said the geopolitical issues are creating additional focus on managing client portfolios through volatility, and emphasizing the importance of diversification away from certain names, sectors and asset classes.

Reflecting such diversity, and increased risk appetite among investors on Thursday, the small-cap Russell 2000 index .RUT gained 1.2% to a record high.

The CBOE Volatility Index, also known as Wall Street's fear gauge, slid to 15.45 points, moving further from a two-month peak touched on Tuesday.

At 1:52 p.m. Eastern time, the S&P 500 .SPX was up by 52.42 points, or 0.76%, to 6,928.04 points, while the Nasdaq Composite .IXIC had gained 251.93 points, or 1.09%, to 23,476.75. The Dow Jones Industrial Average .DJI rose 434.30 points, or 0.88%, to 49,511.53.

ECONOMIC DATA IN SPOTLIGHT

Thursday's gains left the S&P 500 and Dow about 60 points and 120 points, respectively, short of their record intraday highs achieved on January 12, and the Nasdaq roughly 550 points from its October 29 lifetime peak.

Many of the so-called Magnificent Seven stocks are set to report earnings next week, which will indicate whether current valuations are justified. In the meantime, all of them were gainers on Thursday, with Meta META.O jumping 5.4% and Alphabet GOOGL.O, Tesla TSLA.O and Apple AAPL.O all up between 1% and 3.4%.

U.S. consumer spending increased solidly in November and October, likely keeping the economy on track for a third straight quarter of strong growth, the personal consumption expenditures index showed.

Separate data showed initial claims for state unemployment benefits increased less than expected last week, while the U.S. economy grew by a slightly more-than-expected 4.4% in the third quarter of 2025.

Federal Reserve policymakers will meet next week to decide on U.S. interest rates. The central bank is widely expected to stand pat on rates due to sticky inflation and evidence of economic resilience.

EARNINGS A PROVING GROUND

The earnings season is picking up pace, and could test market sentiment as companies detail how consumer demand, cost pressures and a bumpy macro backdrop shaped their year-end performance.

The latest tranche of bank earnings helped push the regional banking index .KRX up 1.2% to a record high.

GE Aerospace GE.N slipped 5.8% despite forecasting its annual profit above estimates. Abbott ABT.N slid 9.6% after the medical device maker forecast current-quarter profit below Wall Street expectations.

Procter & Gamble PG.N gained 3.2% following quarterly results. Chipmaker Intel INTC.O, up 47% so far this year, is expected to post results after the bell.

U.S.-listed shares of Alibaba Holdings BABA.N rose 5.7% after Bloomberg News reported the Chinese e-commerce firm is preparing to list its chipmaking arm, T-Head.