AI-Linked Stocks Drive S&P 500 and Dow to Record Highs Amid Strong Earnings Season

Strong AI-Linked Earnings Propel Markets to Record Territory

The S&P 500 and Dow Jones Industrial Average surged to record highs this week, driven by robust earnings from AI-linked companies that reassured investors about the returns on massive artificial intelligence investments1

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. Palantir Technologies soared nearly 30% after raising its annual revenue forecast, marking its biggest daily percentage gain since February 2024, while ON Semiconductor jumped 7.5% on strong AI-driven demand forecasts for power management chips used in data centers1

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. The S&P 500 gained 137.20 points, or 1.81%, to close at 7,737.70 points, securing its first closing record since July 2, while the Dow rose 912.25 points, or 1.72%, to 54,090.664

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Chip Stocks and Semiconductor Sector Rally on AI Momentum

Chip stocks experienced significant gains as investors responded positively to strong AI-linked earnings. The Philadelphia Semiconductor index shot up nearly 7%, rising for a fourth straight session after tumbling 20.6% in July4

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. Nvidia rose 3.4%, underpinned by SpaceX's plans to use the company's hardware exclusively to build its data centers3

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. Micron added between 2.3% and 4.6% across trading sessions, while Marvell climbed as much as 8.5%1

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. However, not all semiconductor stocks benefited equally. Advanced Micro Devices (AMD) slipped 6.5% despite forecasting quarterly revenue above estimates, suggesting investors were looking for a stronger outlook to justify the stock's 142% jump this year3

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Earnings Season Exceeds Historical Standards

This earnings season has delivered results that significantly surpass historical benchmarks. Of the 304 companies in the S&P 500 that reported second-quarter earnings as of Friday, 85.2% beat estimates, compared to the long-term average of 67.5%1

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. Strong results from AI leaders Microsoft and Amazon last week provided relief and underpinned gains on Wall Street following a turbulent July1

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. Caterpillar, seen as a bellwether for the global industrial economy, jumped 7.5% after raising its annual revenue growth forecast, as the buildout of AI data centers fueled demand for its power-generation and construction equipment4

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. The move in Caterpillar accounted for more than 300 points to the upside for the Dow Jones Industrial Average4

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Middle East Deal Hopes Impact Crude Oil Prices and Rate Expectations

Crude oil prices dropped approximately 5% after a Qatari official indicated that efforts to secure a diplomatic resolution to the Iran conflict were continuing, while U.S. Treasury Secretary Scott Bessent suggested a deal with Iran to reopen the Strait of Hormuz could come within the next two days4

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. This tumble in oil prices dented expectations for a rate hike from the Federal Reserve at its September meeting, with probabilities dropping to 56.9% from 67.2% in the prior session, according to CME FedWatch4

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. The decline in crude prices also contributed to a retreat in U.S. Treasury yields, providing additional support for stock futures4

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Federal Reserve Policy and Economic Data in Focus

Investors continue to parse economic data to gauge the outlook for Federal Reserve policy at a time when the U.S.-Iran standoff in the Middle East has kept crude prices elevated1

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. The Labor Department's Job Openings and Labor Turnover Survey showed job openings dropped in June to 7.4 million from 7.6 million the month before, weighed down by a sharp decline in the healthcare and social assistance sector, though a rise in hiring and low layoffs suggested the labor market remained stable4

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. Minneapolis Fed President Neel Kashkari stated in an interview with CNBC that he believed now is the time to start slowly moving interest rates higher3

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. Traders see a 63.4% chance that the central bank will hike rates by at least 25 basis points when it meets next month1

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Nasdaq Lags as Some AI Companies Face Investor Skepticism

While the S&P 500 and Dow hit record highs, the Nasdaq lagged, trading about 3% away from an all-time high2

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. SpaceX shares slid 12.5% in early trading despite the company's revenue nearly doubling and operating losses narrowing in its first earnings report since going public, as executives flagged that the spending spree underpinning its lofty ambitions was far from over3

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. Data storage company Western Digital lost 15.5% and memory chip maker Sandisk dropped 10.1% in premarket trading after having shot up 200% and 400% this year, as strong forecasts failed to meet elevated expectations2

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. Luke Lango, chief technology analyst at InvestorPlace, noted that "expectations got priced for outright acceleration, and when the growth and margin trajectory came in 'merely' excellent rather than re-accelerating, an extremely crowded, high-momentum stock got dumped"2

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. Megacaps such as Microsoft and Alphabet gained about 1% each, providing stability to the broader market3

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