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

The S&P 500 and Dow closed at record highs, driven by strong earnings from AI-related companies, particularly Palantir and Caterpillar, which raised revenue forecasts.

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 nearly 30% 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 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 more than 300 points to the upside for the venerable 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.

OIL PRICES DROP ON IRAN DEAL HOPES 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." MAJOR AVERAGES SURGE HIGHER

According to preliminary data, the S&P 500 gained 137.20 points, or 1.81%, to end at 7,737.70 points, while the Nasdaq Composite gained 668.10 points, or 2.58%, ​to 26,581.99. The Dow Jones Industrial Average rose 912.25 points, or 1.72%, to 54,090.66. 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 nearly 7% and rose for a fourth straight session ⁠after ​tumbling 20.6% in July. The S&P 500 tech sector gained 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 will release its first earnings report since its public debut after markets close. The company's shares jumped before the announcement.

McDonald's advanced despite reporting disappointing results, while Pfizer gained 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.