U.S. stocks climbed sharply on Friday, with the Dow Jones Industrial Average hitting an intraday record high, as investors grew more optimistic that diplomatic efforts could prevent a deeper Middle East conflict.
The rally shows how investors continue to prioritize earnings momentum and the artificial intelligence spending boom even as geopolitical risks, elevated oil prices, and inflation concerns linger in the background.
The benchmark S&P 500 moved closer to its eighth consecutive weekly gain, marking its longest winning streak since late 2023, while the tech-heavy Nasdaq Composite remained near record territory. The Dow Jones Industrial Average surged more than 400 points during the session as industrial, healthcare, and technology shares advanced broadly.
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Markets drew support from comments by U.S. Secretary of State Marco Rubio, who said Washington had made some progress in talks with Iran, though negotiations remained unresolved. Iran’s foreign ministry acknowledged discussions were continuing but stressed that significant differences remained between both sides.
The diplomatic developments offered investors a measure of relief after months of market anxiety surrounding the war involving the United States, Israel, and Iran, which has threatened global energy supplies and pushed oil prices sharply higher this year.
“Earnings season looked really good and the economic data, save a few outliers, looked pretty solid so fundamentally the picture looks really solid,” said James St. Aubin, chief investment officer at Ocean Park Asset Management.
“The war has been one major speed bump along the road for at least the equity market but I think the headlines today looked encouraging and that was probably helping at the margin,” he added.
The market’s rebound also reflected easing pressure from the bond market. Yields on long-dated Treasuries retreated after spiking earlier in the week on concerns that energy-driven inflation could force interest rates to remain elevated longer than expected.
The benchmark 10-year Treasury yield slipped to around 4.56%, calming fears that a sustained move above 5% on long-term bonds could destabilize richly valued equities, particularly in the technology sector.
“The bond market seems to be cooling off and yields are coming down from where they were starting to peak earlier this week and I think that’s very encouraging too,” St. Aubin said.
Technology and semiconductor stocks remained central to the rally, even as investors rotated selectively within the sector. The Philadelphia Semiconductor Index jumped 2.5%, extending gains fueled by the global AI infrastructure boom that continues to drive spending on chips, servers, and data centers.
Shares of Qualcomm surged 12% after upbeat investor sentiment around AI-enabled mobile computing and semiconductor demand, while Nvidia slipped modestly following its recent record-breaking rally. Nvidia remains one of the biggest beneficiaries of the AI spending race, with hyperscalers and governments worldwide pouring billions into computing infrastructure.
Investor appetite for AI-linked hardware spread beyond semiconductors into the broader computer industry after Lenovo Group reported a stronger-than-expected 27% rise in quarterly revenue, signaling renewed demand for PCs and enterprise hardware as corporations upgrade systems to handle AI workloads.
The results triggered a sharp rally in U.S. computer makers. Dell Technologies jumped 17% to a record high, while HP Inc. surged more than 15%.
The gains supported a growing market narrative that the AI boom is no longer confined to a handful of mega-cap technology firms but is spreading across hardware, software, and enterprise infrastructure providers.
Elsewhere, corporate deal activity and earnings continued to shape trading. Estée Lauder climbed 12% after the cosmetics maker and Spanish fragrance group Puig ended merger discussions, easing investor concerns about integration risks and deal financing in a volatile market environment.
Workday also advanced after the enterprise software company reported quarterly revenue and profit above Wall Street expectations, adding to evidence that corporate technology spending remains resilient even as businesses face higher borrowing costs and geopolitical uncertainty.
The broader market tone suggested investors remain willing to look past near-term macroeconomic risks as long as earnings growth and AI-related spending continue to offset concerns about inflation and slowing global growth.
Still, underlying tensions remain visible beneath the rally.
Higher gasoline prices linked to instability in the Persian Gulf continue to pressure consumers and complicate the outlook for inflation. The appointment of Kevin Warsh as Federal Reserve chair comes at a delicate moment for policymakers trying to balance economic growth with persistent price pressures.
The war in the Middle East has already added fresh uncertainty to the inflation outlook, especially if disruptions to shipping through the Strait of Hormuz worsen or oil prices remain elevated for a prolonged period.
For now, however, investors appear focused on the combination of robust earnings, cooling bond yields, and hopes that diplomacy may prevent a broader regional escalation. Market breadth reflected that optimism. Advancing stocks outpaced decliners by nearly two-to-one on the New York Stock Exchange, while the S&P 500 recorded dozens of fresh 52-week highs.
The CBOE Volatility Index, Wall Street’s closely watched fear gauge, fell to its lowest level in more than two weeks ahead of the Memorial Day holiday weekend, signaling that investor anxiety has eased significantly from the peaks seen earlier during the Iran conflict escalation.