The Dow Jones Industrial Average surged more than 900 points on Tuesday, while the S&P 500 reached a new all-time high. The S&P 500 closed above 7,700 for the first time and jumped nearly 2% on the day.
The rally followed commentary from US Treasury Secretary Scott Bessent, who told CNBC's 'Squawk Box' that the US and Iran could reach a deal either Tuesday or Wednesday to reopen the Strait of Hormuz. Bessent stated, 'We are in talks with the Iranians,' noting a chance for a deal to open the Strait 'today or tomorrow.'
Following the remarks, Dow futures surged and oil futures tumbled. Larry Tentarelli, chief technical strategist at the Blue Chip Daily Trend Report, stated that Iran headlines are likely to keep driving the market, though he warned of potential volatility if tensions between the US and Iran flare up again.
It's not just one news event causing the rally. You're getting a succession of events.
Earnings growth and sector performance
Market optimism is also linked to earnings projections. Bank of America Securities reported that the S&P 500 is on track to deliver second quarter earnings growth of 27% on a yearly basis, excluding mark-ups at Alphabet and Amazon. Including those companies, the S&P 500 is on pace to deliver 45% year-over-year earnings growth.
S&P 500 projected Q2 yearly growth, excluding Alphabet and Amazon mark-ups
Bank of America Securities' earnings growth estimate represents a 4% beat compared to the consensus from the start of the earnings season. Jay Woods, chief market strategist at Freedom Capital Markets, said, 'War continues to get shrugged off. Earnings are finally winning.'
Technology stocks contributed significantly to the gains.
The Roundhill Magnificent Seven ETF (MAGS) rose almost 1% on Tuesday.
Market outlook and recent volatility
Jeff Krumpelman, chief investment strategist at Mariner, said the market is assuming the Strait of Hormuz closure can be handled well and that oil prices will stabilize long term. However, he cautioned that conflict could become a headwind if it extends and oil prices reach $150 per barrel. Krumpelman predicts the S&P 500 can reach 8,100 by year-end and 8,400 by mid-2027.
The recent rally follows a period of movement involving the Situational Awareness fund, which peaked in July at around $45 billion before Leopold Aschenbrenner sold his leveraged stock bets to Citadel last week. Jeff Kilburg, investing chief at KKM Financial, referred to the recent movement as the 'Leopold low.'
Data from Charles Schwab showed that the average stock in the S&P 500 index slipped 0.2% on the day after reporting during this earnings season.
