US stocks advanced on Tuesday, with the S&P 500 and Nasdaq poised to notch all-time closing highs. The rally was driven by steady crude prices and easing US treasury yields, offering some reprieve from concerns that have preoccupied investors in recent weeks. This allowed markets to turn their attention to the approaching third-quarter reporting season. All three major US stock indices advanced, with investors awaiting the start of earnings season.
Crude prices were relatively stable on Tuesday, with Brent futures down 29 cents to $100.03 a barrel in afternoon trade in London. This put Brent on track for its lowest close since September 22. US West Texas Intermediate crude rose 16 cents to $89.59 a barrel. Government bond yields eased across the curve, including a 5.3 basis-point decline for the benchmark 10-year bond.
According to Oliver Pursche, senior vice-president at Wealthspire Advisors in New York, when oil prices stabilise or move lower, it causes yields to move down because there’s less anxiety about energy-driven inflation. This, in turn, is helping lift stocks higher. The narrative of the market for the past couple of weeks has been influenced by the relationship between oil prices, yields, and stocks.
The “Magnificent Seven” group of AI-linked megacap firms advanced, bolstering gains, while small caps lagged behind their bigger counterparts. Chip designer Nvidia climbed 1.1%, pushing the market valuation of the world’s most valuable company close to the $6-trillion mark. The AI trade is very much alive, with the Philadelphia SE Semiconductor Index gaining 1%.
The US trade deficit grew by 13.7% as imports rose to a record. On monthly and annual bases, imports have grown by 4.3% and 28.4%, respectively, reflecting robust domestic demand that could exacerbate inflation pressures. This is particularly concerning amid war-related supply constraints. The commerce department’s report showed imports of capital goods rose by 4.4% in August.
Financial markets are pricing in a diminishing probability of a Federal Reserve rate hike at this month’s monetary policy meeting. The probability of a rate hike has fallen to 21.6% from 50.9% a week ago, according to CME’s FedWatch tool. Fed rate hike bets have been responsive to oil prices, which have surged amid the Iran war.
The Dow Jones industrial average rose 258.58 points, or 0.51%, to 51,529.51; the S&P 500 gained 55.02 points, or 0.71%, to 7,828.97; and the Nasdaq Composite gained 176.57 points, or 0.64%, to 27,654.59. Third-quarter earnings season kicks off next week, with a number of high-profile financial firms expected to report next Tuesday.
Key points
- The S&P 500 and Nasdaq hit record highs on Tuesday.
- Crude prices steadied, and US treasury yields eased on Tuesday.
- The US trade deficit grew by 13.7% as imports rose to a record.
