Nasdaq Opens 1% Higher While S&P Jumps 0.6% as AI Optimism Outweighs Middle East Risks

Stocks rose on Tuesday as traders weighed the prospects of a potential U.S.-Iran deal being reached to end the war.

Dow Jones Industrial Average popped 258 points, or 0.5%. S&P 500 gained 0.7%, and Nasdaq advanced 1.2%.

Semiconductor stocks, which have surged on AI-driven demand, led gains on Tuesday.

President Donald Trump said Monday that talks with Iran to end the war were “proceeding nicely.” That said, he did warn the U.S. could go on the offensive if negotiations break down.

On top of that, the U.S. said it conducted “self defense” strikes in southern Iran early Tuesday. Some of those targets included missile launch sites and Iranian boats attempting to place mines, U.S. Central Command spokesman Tim Hawkins said. He added that the U.S. used “restraint during the ongoing ceasefire” between the two countries.

U.S. crude came off its lows following the strikes, with West Texas Intermediate futures for July trading 4% lower to $92 per barrel. Brent, meanwhile, traded 3% higher on the day at $99 per barrel.

“The consensus view still assumes there will be some type of a détente formally reached within the next few days between Washington and Tehran, which means the real question is how much of this is already priced in?” wrote Adam Crisafulli of Vital Knowledge.

The S&P 500 climbed 0.9% last week to notch its longest weekly winning streak since late 2023. The Dow climbed 2.1%, marking its third weekly gain in four weeks. The Nasdaq rose 0.5% last week, its seventh in eight weeks.

“There is no doubt that fundamentals are at least partially responsible for the market rally,” wrote Adam Parker, founder of Trivariate Research. “With earnings projected to grow 23% this year, and 16% next year, there’s a credible argument to make that despite the increasing projections for earnings, and strong earnings growth, the price-to-forward earnings has been modestly contracting.”

A decline in oil prices also boosted equities last week. U.S. crude lost 8.4%, marking its worst week since April 17.

However, with crude still trading well above the levels seen earlier in the year – and price pressures remaining elevated – investor expectations for easier Federal Reserve policy have been tempered. In fact, traders are pricing in an 8.5% chance of a rate hike in July, up from 0.9% a month ago, according to the CME Group’s FedWatch tool.