Dow, S&P 500 close at record on AI-linked earnings, Mideast deal hopes

The S&P 500 and the ⁠Dow ⁠closed at record highs on Tuesday, powered by the ⁠latest batch of earnings from AI-related companies such as Caterpillar and Palantir that assuaged demand concerns, while crude prices and ​Treasury yields dropped on hopes for a deal in the Iran war.

Palantir Technologies soared 29.5% and recorded its biggest daily percentage gain since February 2024, after raising its annual revenue forecast.

Caterpillar, seen ‌as a bellwether for the global industrial economy, ‌jumped 5.6% after raising its annual revenue growth forecast, as the buildout of AI data centers has fueled demand for its power-generation and construction equipment.

The move in Caterpillar made it ⁠the biggest boost to ⁠the Dow Industrials, accounting for about 280 to the upside for the average.

Investors have been closely monitoring results ​from AI-linked companies this earnings season for any signs the massive spending in the space will be justified.

Also supporting stocks was a drop of about 5% in crude prices after a Qatari official said efforts to secure a diplomatic resolution to the conflict were continuing, while U.S. Treasury Secretary Scott Bessent said a deal with Iran to reopen the Strait ​of Hormuz could come within the next two days.

The tumble in oil prices also dented expectations for a rate hike from the Federal Reserve at its ⁠September ⁠meeting down to 56.9% from 67.2% ⁠in the prior session, according to ​CME FedWatch, which contributed to a retreat in U.S. Treasury yields.

“I don’t sense one ounce of skepticism among investors, from oil to interest rates to ​equities,” said Jack Ablin, chief investment strategist and ⁠founding partner at Cresset Capital Management in Chicago.

“The earnings reports were certainly supportive, and that’s great news, but I’m not sure a handful of earnings reports justifies new records in the S&P.”

The Dow Jones Industrial Average rose 907.47 points, or 1.71%, to 54,085.88, the S&P 500 gained 136.02 points, or 1.79%, to 7,736.52 and the Nasdaq Composite gained 671.10 points, or 2.59%, to 26,584.99.

The Dow recorded a closing high for a second straight day after notching its first since July 6 on Monday, while the S&P 500 on Tuesday secured ⁠its first closing record since July 2.

Chip stocks, also seen as beneficiaries of AI-spending, surged. The Philadelphia Semiconductor index shot up ⁠6.6% and rose for a fourth straight session after tumbling 20.6% in July.

The S&P 500 tech sector gained 4.1% as the best performing of the 11 major S&P sectors.

Results from corporate earnings this quarter have mostly been robust. Of the 304 companies in the S&P 500 that have reported second-quarter earnings as of Friday, 85.2% have beaten estimates, versus the long-term average of 67.5%, according to LSEG data, with every major S&P sector showing profit growth.

Elon Musk’s SpaceX shares closed up 9.4% before reporting its quarterly results. After the closing bell, shares dropped about 4% after announcing its first earnings since going public.

McDonald’s advanced 1.2% despite reporting disappointing results, while Pfizer gained 1.5% after reporting upbeat quarterly results.

On the data front, job openings dropped in June, weighed down by a sharp decline in the healthcare and social assistance sector, but a rise in hiring and low layoffs suggested the labor market remained stable. The data is ⁠the first in a series of reports on the labor market this week that will culminate in Friday’s government payrolls report.

Advancing issues outnumbered decliners by a 2.84-to-1 ratio on the NYSE and by a 2.89-to-1 ratio on the Nasdsq.