US stocks: Dow, S&P 500 close at record on AI-linked earnings, Middle East deal hopes

[NEW YORK] The S&P 500 and the Dow closed at record highs on Tuesday (Aug 4), 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 per cent 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 per cent after raising its annual revenue growth forecast, as the buildout of AI data centres 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.

Oil prices drop

Also supporting stocks was a drop of about 5 per cent in crude prices after a Qatari official said efforts to secure a diplomatic resolution to the conflict were continuing, while US 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 per cent from 67.2 per cent in the prior session, according to CME FedWatch, which contributed to a retreat in US 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.

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S&P 500 hits record high on strong AI-linked earnings, Middle East deal hopes 

“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

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

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

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

The S&P 500 tech sector gained 4.1 per cent 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 per cent have beaten estimates, versus the long-term average of 67.5 per cent, according to LSEG data, with every major S&P sector showing profit growth.

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

McDonald’s advanced 1.2 per cent despite reporting disappointing results, while Pfizer gained 1.5 per cent 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 labour market remained stable.

The data is the first in a series of reports on the labour 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.

The S&P 500 posted 27 new 52-week highs and three new lows while the Nasdaq Composite recorded 138 new highs and 54 new lows.

Volume on US exchanges was 18.89 billion shares, compared with the 17.33 billion average for the full session over the last 20 trading days. REUTERS