S&P 500, Nasdaq rise as AI optimism outweighs Middle East risks

By Twesha Dikshit and Utkarsh Hathi

May 26 (Reuters) – The S&P 500 and the Nasdaq traded near record highs on Tuesday, with AI-fueled optimism offsetting concerns over Middle East peace talks after recent U.S. strikes on Iran.  

U.S. Secretary of State Marco Rubio said that the deal with Tehran could “take a few days,” while Iran’s Tasnim news agency reported that Tehran was seeking the release of $24 billion of Iranian funds frozen overseas.

“Even though we don’t have an end of the war yet, there’s a very high likelihood the situation will resolve itself in a peaceful fashion sooner rather than later,” said Adam Sarhan, chief executive of 50 Park Investments.

“How the resolution looks and what actually happens is going to matter. But the reality is that earnings are expected to grow even with high inflation. The economy is still growing, and the market is a mirror of the economy to a large extent.”

Brent crude oil rose as much as 3% but remained below $100 a barrel, while global stocks wavered as uncertainty lingered over whether a deal would be reached to open up shipping flows through the Strait of Hormuz. 

Semiconductor stocks, which have surged on AI-driven demand, led gains. Micron jumped almost 17% and hit $1 trillion in market value for the first time after UBS increased its price target on the stock to $1,625 from $535.

Qualcomm rose 5.3% after Bloomberg News reported it reached a deal with TikTok owner ByteDance to supply chips, while Intel and Marvell Technology added 2.7% and 4.2%, respectively. The Philadelphia SE Semiconductor index rose 4.6% to an all-time high. 

At 11:22 a.m. ET, the Dow Jones Industrial Average fell 95.34 points, or 0.19%, to 50,484.36, the S&P 500 gained 45.26 points, or 0.61%, to 7,518.73 and the Nasdaq Composite gained 275.07 points, or 1.05%, to 26,619.04.

The S&P 500 and the Russel 2000 both touched intraday record highs on Tuesday, underscoring the strength of the recent rally.

Six of the 11 main S&P sectors were in the green, with the S&P 500 information technology subindex leading gains with a rise of 1.7%. 

Upbeat earnings and renewed confidence in AI trade have driven U.S. equities higher despite the ongoing conflict with Iran, with investors now turning their attention to IPOs of some of the largest private AI companies, including SpaceX.

Shares of space companies jumped, with Intuitive Machines gaining 17.7%, while Planet Labs and Rocket Lab were up 14.5% and 6.8%, respectively.

With the earnings season winding down, first-quarter earnings growth is expected to be 29% year-on-year compared with the 16.1% estimated a month ago, according to LSEG data from Friday. 

A survey showed U.S. consumer confidence eased in May as worries about higher prices linked to the Iran war intensified, offsetting an improvement in labor market perceptions.

Advancing issues outnumbered decliners by a 2.55-to-1 ratio on the NYSE and by a 1.99-to-1 ratio on the Nasdaq.

The S&P 500 posted 39 new 52-week highs and one new low, while the Nasdaq Composite recorded 157 new highs and 52 new lows.

(Reporting by Twesha Dikshit and Utkarsh Hathi in Bengaluru; Editing by Shinjini Ganguli)