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 percent 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 percent after raising its annual revenue growth forecast, as the buildout of AI data centres has fuelled 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 percent 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 percent from 67.2 percent in the prior session, according to CME FedWatch, which 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."

The Dow Jones Industrial Average rose 907 points, or 1.7 percent, to 54,085, the S&P 500 gained 136 points, or 1.8 percent, to 7,736 and the Nasdaq Composite gained 671 points, or 2.6 percent, to 26,584.

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 percent and rose for a fourth straight session after tumbling 20.6 percent in July.

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

Elon Musk's SpaceX shares closed up 9.4 percent before reporting its quarterly results. After the closing bell, shares tumbled after announcing its first earnings since going public.

McDonald's advanced 1.2 percent despite reporting disappointing results, while Pfizer gained 1.5 percent after reporting upbeat quarterly results. (Reuters)



Edited by Cecil Wong