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

Oil slides on Iran deal hopes

Crude prices fell around 5% after a Qatari official said efforts to secure a diplomatic

resolution to the conflict were continuing. 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% from 67.2% in the prior session, according to CME FedWatch. That contributed to a retreat in US Treasury yields. 

“I don't sense one ounce of scepticism 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.”

Chip stocks and tech lead the rally

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. 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. 

Earnings season stays robust

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 4.0% after announcing its first earnings since going public.

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

Jobs data and market breadth

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.