The S&P 500 is back near record highs. Here’s why
By John Towfighi, CNN
New York (CNN) — US stocks jumped Tuesday morning, putting the S&P 500 on track for its first record high since June.
The S&P 500 is back near all-time highs while investors digest corporate earnings, reassess bets on artificial intelligence and monitor developments in the Middle East.
Nerves about AI roiled markets earlier this summer, but a strong earnings season, rotation into different sectors and rebound in tech has helped to push the S&P 500 back toward record highs.
The S&P 500 rose 0.7% shortly after the opening bell and traded at 7,653 points. A gain of at least 0.13% on the day would put the index at a new closing record high, surpassing its previous closing peak on June 2.
Stocks got a boost and oil prices fell after Treasury Secretary Scott Bessent told CNBC early Tuesday that he thinks a deal to open the Strait of Hormuz could happen today or tomorrow.
Traders leaned in to Bessent’s comments, although it remains to be seen how tensions between Washington and Tehran develop. Efforts to resolve the conflict are “in very progressive stages,” Qatar’s Foreign Ministry said Tuesday. Traders have been closely watching shipping traffic out of the Strait of Hormuz to gauge whether oil flows are resuming.
The Dow gained 543 points, or 1%, extending gains into record territory after closing at an all-time high on Monday, its first since July 6. The tech-heavy Nasdaq Composite rose 1.3%, and is just over 3% away from its last record high set in early June.
The S&P 500’s return to record highs would mark the culmination of a two-month swoon that saw the index drop almost 5% from its recent peak before bouncing around and resuming its climb. All told, the index was always relatively close to record highs. But heightened nerves about AI fueled bouts of market anxiety.
The Nasdaq in late July was down almost 10% from its recent peak, nearing a so-called correction. After a stunning rally earlier this year, semiconductor chip makers dropped sharply while investors were selective about other tech stocks, putting pressure on the market.
Sharp single-day swings and extraordinary volatility in South Korea also highlighted the risk of markets being heavily concentrated in one theme like AI.
Still, investors monitored earnings and stepped in to buy the dip on some Big Tech and software stocks. Meanwhile, investors moved into other sectors.
The Dow on Monday closed above 53,000 points for the second time ever. The Dow and S&P 500 are at record highs while the Nasdaq lags because investors are looking to other sectors of the stock market besides just technology.
Across the past three months, the healthcare and financial sectors – which the Dow has strong exposure to – have outperformed technology. Still, tech is the third-best performing sector across that time, and the Nasdaq is up more than 3% already this week, playing catch up with the other indexes.
Tech has been the leader this year, with the AI boom dominating the stock market as investors’ favorite theme. Investors are trying to discern between the companies poised to be winners or losers from the AI boom.
Wall Street is in the midst of quarterly earnings. As of July 31, about 61% of companies in the S&P 500 had reported earnings, with 86% of those companies reporting a positive surprise on earnings per share, a measure of profitability, according to FactSet.
On the whole, companies’ earnings growth is proving robust, with a blended measure the combines results and estimates on pace for the highest earnings growth rate in five years, according to FactSet.
Investors on Tuesday afternoon will receive SpaceX’s first-ever quarterly earnings as a public company. SpaceX shares rose 1% Tuesday to $116 but are below the company’s IPO target price of $135 a share.
Oil prices fell Tuesday, helping to ease nerves about inflation. US Treasury yields fell, pulling back after soaring last week. Stocks have been resilient despite uncertainty over the closure of the Strait of Hormuz.
August to October is historically the S&P 500’s weakest three-month period, according to Bank of America. Investors are watching the AI trade and whether the Nasdaq can reclaim records highs.
“Falling oil, lower yields and broadening participation with the (S&P 500) near all-time highs suggest a favorable ‘risk-on’ narrative, but lingering headline risks and lackluster market breadth make the recovery ‘good, not great’,” Craig Johnson, chief market technician at Piper Sandler, said in a note.
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