US stocks climbed to fresh record closing highs on Tuesday as a pullback in Treasury yields and greater stability in oil prices eased concerns over an inflation shock, allowing investors to shift some attention from geopolitics and monetary policy toward the approaching third-quarter earnings season.
The S&P 500 gained 0.58% to 7,818.95, while the Nasdaq Composite advanced 0.45% to 27,599.79. Both indexes finished at record closing levels. The Dow Jones Industrial Average rose 253.14 points, or 0.49%, to 51,521.04, although it remained more than 5% below its record close reached on August 5.
The rally showed how closely US equities remain tied to movements in energy markets and government bond yields. Oil prices had become a major source of anxiety for investors as the Iran war raised the prospect of prolonged supply disruptions and a renewed inflation shock. A stabilization in crude prices has since reduced some of that pressure.
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“When oil prices stabilize or move lower, that causes yields to move down because there’s less anxiety about energy-driven inflation, which in turn is helping lift stocks higher,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “This has been the narrative of the market for the last couple of weeks.”
The relationship is important because higher oil prices can feed directly into inflation while also increasing the probability that the Federal Reserve will keep monetary policy restrictive or raise interest rates further. Lower Treasury yields, by contrast, can improve the relative appeal of equities, particularly higher-growth technology companies whose valuations are sensitive to borrowing costs and discount rates.
The latest move in oil prices also helped reduce immediate concerns about a worsening supply shock. The Group of Seven countries agreed to release emergency diesel and crude stockpiles, helping stabilize front-month West Texas Intermediate and Brent crude futures. That improvement has been reflected in interest-rate markets. Investors now see only a 19.4% probability that the Federal Reserve will deliver a second consecutive rate increase at its upcoming policy meeting, down from 50.9% a week earlier, according to CME’s FedWatch tool.
The sharp change in expectations illustrates how quickly markets have responded to movements in crude prices. Investors had increased bets on another Fed hike as oil surged following the outbreak of war involving Iran, raising concerns that energy costs could spread into broader consumer prices.
“We don’t expect the Fed to do anything at the next meeting,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “But I think they’re in a gradual hiking cycle.”
“High oil prices have hit a broad range of consumers,” Ghriskey added. “That’s one of the reasons for the recent Fed hike.”
AI Trade Remains Central to Market Gains
Technology stocks remained an important driver of the advance, with six of the seven major AI-linked megacap companies gaining ground. The Philadelphia Semiconductor Index also moved higher, indicating that investor appetite for the AI infrastructure trade remains intact even as questions over valuations and the scale of AI capital spending continue to shape the market.
Recent trade data provided another indication of the investment boom. US imports of capital goods increased 4.4% in August, consistent with continued spending on equipment and infrastructure.
The broader trade deficit, however, expanded 13.7% as imports reached a record level. Imports increased 4.3% from the previous month and 28.4% from a year earlier.
The strength of imports points to resilient domestic demand, but it also presents an inflation risk at a time when supply chains remain exposed to geopolitical disruption. Strong demand combined with higher energy costs could make it more difficult for inflation to return sustainably to the Fed’s target.
For now, equity investors appear willing to look through that risk. The market’s focus is shifting toward corporate earnings, with third-quarter reporting season due to begin next week.
Analysts expect aggregate S&P 500 earnings to increase 30.6% from a year earlier during the July-to-September period, according to LSEG. Energy companies are expected to lead with earnings growth of 114.7%, followed by technology companies with an estimated 66.5% increase.
Those expectations raise the stakes for the coming reporting season. With the S&P 500 and Nasdaq already at record closing levels, companies will need to deliver strong earnings and guidance to justify elevated valuations. Any evidence that higher energy costs, financing expenses, or weaker demand are beginning to affect margins could quickly alter investor sentiment.
At the same time, strong earnings would provide another foundation for the market’s advance, particularly if Treasury yields remain contained.
Corporate Announcements Reinforce Infrastructure Theme
Several individual stocks underscored the importance of AI and power infrastructure to the current market rally.
Marvell Technology rose 5.8% after the chip designer increased its 2028 revenue forecast, citing strong demand for data-center chips. AMD gained 2.8% after Chief Executive Lisa Su said the company plans to substantially increase chip supply in 2027 to meet rising AI demand.
The gains show that the AI investment cycle is now extending beyond the largest technology platforms to semiconductor designers and suppliers that provide the computing infrastructure required to train and operate AI systems.
Power demand is emerging as another important part of the trade. Constellation Energy surged 12.3% after Alphabet entered into a 3,590-megawatt power agreement with the company. The deal highlights the growing connection between AI data centers and electricity infrastructure, as technology companies seek reliable power to support expanding computing capacity.
Outside the AI and energy themes, corporate deal activity also produced significant individual moves. Option Care Health jumped 32.7% after McKesson and private equity firm Clayton Dubilier & Rice agreed to acquire the infusion therapy provider in a transaction valued at about $5.8 billion, including debt.
The broader market was positive but not uniformly strong. All but one of the 11 major S&P 500 sectors advanced, with utilities leading the gains while healthcare was the only declining sector. Small-cap stocks lagged their larger-cap counterparts, suggesting that the rally remained concentrated in companies with stronger earnings visibility and greater exposure to the dominant technology and infrastructure themes.
Market breadth was relatively modest. On the New York Stock Exchange, advancing stocks outnumbered declining stocks by 1.93 to 1. On Nasdaq, the ratio was almost evenly split at 1.01 to 1.
The S&P 500 recorded 23 new 52-week highs and two new lows, while the Nasdaq posted 61 new highs and 182 new lows. Trading volume was 16.50 billion shares, below the 20-session average of 17.51 billion.
That mixed breadth is an important qualification to the record closes. The major indexes are reaching new highs, but participation across the wider market remains less convincing.
The immediate market narrative is therefore being shaped by three forces: oil prices, Treasury yields and corporate earnings. Analysts expect sustained moderation in crude prices to continue to reduce pressure on bond yields and the Fed outlook, and strong earnings to reinforce the equity rally. But renewed energy disruptions, higher inflation expectations, or a sharp rebound in Treasury yields could quickly bring monetary policy back to the center of investor attention.