US stocks hit record high, shrugging off bond market turmoil

By John Towfighi, CNN

New York (CNN) — The artificial intelligence boom keeps rolling, sending stocks climbing: The S&P 500 rose 0.58% on Tuesday and closed at 7,819 points, a record high.

The S&P 500 clinched its first record high since mid-August and closed above 7,800 points for the first time ever.

Wall Street is rallying as investors rekindle AI enthusiasm. The tech-heavy Nasdaq Composite is up 2.75% this month and hit back-to-back record highs on Monday and Tuesday.

Meanwhile, stocks across the board got a boost on Tuesday as the 10-year Treasury yield pulled back from a 24-year high, taking some pressure off the market.

The Dow rose 253 points, or 0.49%, on Tuesday. Still, the blue-chip Dow is down 5% since its last record high in early August, lagging behind the S&P and Nasdaq’s gains.

Wall Street cheers AI outlook

There is lingering uncertainty about the war with Iran and turmoil in the global bond market. But investors in tech and AI stocks are shrugging it all off.

The booming AI investment cycle continues, with semiconductor chipmakers benefitting from a robust outlook. Investors are also gearing up for third quarter earnings season.

Marvell Technology (MRVL), a chipmaker, on Tuesday raised its forecast for revenue in the coming years because of a strong outlook for the AI buildout. Marvell shares rose 5.8%, their best day in a month.

Shares of Advanced Micro Devices (AMD), another chipmaker, rose 2.8% on Tuesday after CEO Lisa Su told reporters in Taipei that the company plans to ramp up its supply of semiconductor chips next year, according to Reuters.

Tech and AI did the heavy lifting in pushing the S&P 500 back to record highs. In recent weeks, tech has been the clear winner while other sectors of the stock market grapple with pressure from rising bond yields.

The 10-year Treasury yield, which underpins the cost of borrowing, from financing debt to take out a mortgage, recently hit its highest level since 2002.

Tech is the only sector that has posted gains over the past month. Real estate, financials, materials and utilities have each dropped more than 4% over the past month as higher borrowing costs weigh on the outlook for stocks.

The S&P 500 and Nasdaq Composite are weighted by market value. The larger a company is by market value, the more influence it has on the index. At almost $6 trillion in market value, Nvidia accounts for more than 8% of the S&P 500. Nvidia is up almost 5% this month, boosting the major indexes.

The gains in tech stocks are outweighing declines in other sectors. Still, Wall Street is cautious about the rally being dependent on tech. Investors are on the lookout for whether higher bond yields could rain on the parade.

“The breadth of the rally has narrowed,” Ulrike Hoffmann-Burchardi, global head of equities at UBS, wrote in a note.

“We retain strong conviction in the AI growth story, and believe AI-related investment remains a powerful tailwind for the broader equity market,” Hoffmann-Burchardi said. “But the increasing concentration of market gains reinforces the importance of managing risk through a broadly diversified equity portfolio.”

Treasury yields moved lower Tuesday, but remained at multi-year highs. The 10-year yield traded around 5.26%, down from rising as high as 5.35% on Monday but still at its highest level since 2007.

Return to record highs

It’s been a choppy ride to all-time highs, but the S&P 500 has nonetheless rebounded and climbed, boosted by resurgent bouts of AI optimism, robust corporate earnings and a resilient US economic backdrop.

The S&P 500 is up 14% this year, surpassing obstacle after obstacle to hit record highs. The benchmark for the US stock market is on track for its fourth-straight year of double-digit gains.

The S&P 500 is a benchmark for trillions of dollars in retirement savings and personal investments. The index trading at record highs means retirement savings and personal portfolios invested in the index are doing well.

While the S&P 500 is at record highs, an equal-weight version of the S&P 500 that gives each stock the same weight is down more almost 5% since its record high in mid-August.

“A narrow set of leaders is doing more work than the underlying market,” Craig Johnson, chief market technician at Piper Sandler, wrote in a note.

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