US stock markets surged on Tuesday, with the Dow Jones Industrial Average climbing 1,035 points, or 2%, to a new record high, and the S&P 500 rising 1.8% to 7,736, surpassing its previous high from June 2. The tech-heavy Nasdaq Composite also gained 2.6%. This rally was driven by optimism surrounding a potential deal to reopen the Strait of Hormuz, which could lead to lower global energy prices, and robust corporate earnings reports.
Treasury Secretary Scott Bessent fueled this optimism during a CNBC appearance, stating there was a chance for a deal with Iran to open the Strait "today or tomorrow." This news led to a significant drop in oil prices, with Brent crude sinking 4.9% to $79.64 per barrel and West Texas Intermediate crude futures sliding 5% to approximately $76 a barrel. The prospect of easing geopolitical tensions and lower energy costs was a key factor in the market's positive performance.
Strong corporate earnings also played a crucial role in the stock market's ascent. Companies in the S&P 500 index were on track to deliver nearly 50% growth in earnings per share for the spring quarter. Notable contributions came from Caterpillar, which jumped 6%, and Palantir Technologies, whose stock climbed 29% after its CEO described second-quarter results as "otherworldly." The positive JOLTS report, indicating solid hiring and modest layoffs, further supported investor confidence. Saudi Aramco also reported a 44% surge in net profits.
Asian markets showed mixed performance but generally leaned positive. Japan’s Nikkei 225 edged up 0.3%, and South Korea’s Kospi gained 1.6%. However, Hong Kong’s Hang Seng Index dipped 0.6%. European markets also saw gains, with the DAX up 0.8% and the CAC 40 up 0.6%.
Despite the immediate rally, some investors remained cautious, given past instances where announcements of imminent deals regarding the US-Iran conflict did not materialize. The market's current trajectory suggests a pricing in of a more nuanced geopolitical path with lower immediate military escalation risk, but without a guarantee of the Strait of Hormuz returning to normal operations.
