Key Takeaways:
U.S. stocks rallied to record highs on Wednesday, with the S&P 500 closing above the 7,000 level for the first time, as investors grew more optimistic that the war with Iran will not escalate into a wider conflict that could damage the global economy.
"Stocks are basically expressing their view that the war in the Persian Gulf is all but over," Steve Sosnick, chief strategist at Interactive Brokers, wrote in a note. "It’s not necessary to get a deal, only to receive continued reassurance that one is just around the corner.”
The S&P 500 rose 0.8% to 7,022.95, erasing all its losses since the conflict began in late February. The technology-heavy Nasdaq Composite gained 1.6% to a record 24,016.02, while the Dow Jones Industrial Average slipped 72.27 points, or 0.1%, to 48,463.72. The advance was narrow, with gains in a few megacap technology stocks driving the rally.
The market's performance reflects a collective bet that a resolution is near, a dynamic some on Wall Street have dubbed the "TACO" trade, for "Trump always chickens out." The theory suggests that President Trump will avoid prolonged economic pain, conditioning investors to buy on dips related to geopolitical tensions. The 10-year Treasury yield rose to 4.28%, and the price for Brent crude, the international oil standard, settled at $94.93 a barrel, down from its peak of $119.
Underpinning the market's resilience is a continued boom in artificial intelligence. Microsoft shares surged 4.6% and Tesla jumped 7.6%. Enthusiasm for AI has helped the technology sector account for almost half of the S&P 500's market capitalization, according to Mark Zandi, chief economist at Moody's.
In a sign of the market's appetite for AI-related ventures, shoe company Allbirds announced it was rebranding as NewBird AI and shifting to the AI compute infrastructure industry. The stock soared more than 700% to nearly $17 a share on the news.
Solid bank earnings also boosted sentiment. Bank of America rose 1.8% and Morgan Stanley jumped 4.5% after both reported profits that beat analyst expectations.
In other individual stock news, Nike shares rose 2.8% after the company disclosed that CEO Elliott Hill and Apple CEO Tim Cook, a Nike director, bought a combined $2 million worth of the company's stock. On the downside, Live Nation Entertainment fell 6.3% after a jury found its Ticketmaster subsidiary held a monopoly over concert venues.
This article is for informational purposes only and does not constitute investment advice.
