Dow, S&P 500 hit record highs as AI earnings and oil drop lift stocks

Stocks rallied sharply on Tuesday, sending both the Dow Jones Industrial Average and the S&P 500 to fresh record highs as strong corporate earnings and another steep decline in oil prices boosted investor sentiment.

Optimism over artificial intelligence spending continued to build after upbeat results from Palantir Technologies and Caterpillar, while hopes for easing tensions in the Middle East weighed on crude prices and Treasury yields.

The Dow Jones Industrial Average climbed about 912 points, or 1.7%, to close at 54,090.66, marking its second consecutive record close.

The S&P 500 rose 1.8% to 7,737.70, its first record closing high since early July, while the Nasdaq Composite gained 2.6% to 26,581.99.

The broad-based rally followed another strong day for technology shares, with the S&P 500 technology sector leading gains.

The Philadelphia Semiconductor Index surged nearly 7%, extending its rebound after a sharp decline in July.

AI earnings fuel technology rally

Artificial intelligence remained the dominant theme driving markets as investors welcomed another round of earnings that reinforced confidence in corporate AI spending.

Palantir Technologies soared nearly 30%, recording its biggest one-day gain since February 2024 after reporting stronger-than-expected second-quarter results and raising its annual revenue forecast.

The company's earnings helped ease concerns about demand for enterprise AI software.

Chipmakers also rallied strongly. Micron Technology advanced 7%, while Marvell Technology jumped 12% as semiconductor stocks continued recovering from last month's selloff.

Beyond technology, Caterpillar provided another boost to market sentiment.

Shares of the industrial equipment maker climbed about 6% after the company reported better-than-expected quarterly earnings and raised its full-year revenue growth outlook.

Caterpillar cited growing demand for equipment linked to the expansion of AI data centers and said its tariff-related costs are expected to come in at the lower end of its previous guidance.

Financial stocks also participated in the rally, with Goldman Sachs gaining more than 3%, while industrials and materials each rose nearly 2%.

Corporate earnings have broadly exceeded expectations this reporting season.

According to LSEG data, 85.2% of the 304 S&P 500 companies that had reported second-quarter earnings through Friday beat analyst estimates, well above the long-term average of 67.5%.

Oil prices tumble as Iran negotiations remain in focus

Markets also benefited from another sharp decline in crude oil prices as hopes for a diplomatic breakthrough between the United States and Iran improved investor sentiment.

West Texas Intermediate crude settled 5.69% lower at $75.77 per barrel, while Brent crude fell 5.26% to $79.36 per barrel.

The decline followed comments from US Treasury Secretary Scott Bessent indicating that discussions with Iran were ongoing and that a deal to reopen the Strait of Hormuz could potentially be reached within days.

Reports that diplomatic efforts were continuing also reduced concerns over disruptions to global energy supplies.

Lower oil prices helped ease inflation expectations, contributing to a decline in Treasury yields.

According to CME FedWatch data, the probability of a Federal Reserve rate hike in September fell to 56.9% from 67.2% in the previous session.

Investors watch economic data and more earnings

Markets also digested fresh economic data showing US job openings declined in June, largely because of weaker hiring demand in the healthcare and social assistance sector.

However, rising hiring activity and relatively low layoffs suggested the labor market remained stable.

The report marks the beginning of a closely watched week for employment data, culminating in Friday's nonfarm payrolls release, which investors will use to assess the outlook for Federal Reserve policy.

Elsewhere, Amazon slipped about 2% after Jeff Bezos disclosed plans to sell roughly $4 billion worth of company shares, while McDonald's and Pfizer both gained following their latest quarterly earnings reports.