Key insights
- The Dow Jones Industrial Average reached a record high driven by a rotation into cyclical stocks like Caterpillar and JPMorgan Chase, fueled by declining oil prices. This suggests investor optimism about economic re-acceleration. Conversely, the Nasdaq and chip stocks (AMD, Broadcom, Micron, Nvidia) experienced a pullback, indicating sector-specific weakness. Geopolitical developments regarding a Middle East peace deal and the Strait of Hormuz reopening contributed to lower oil prices and influenced market sentiment.
The Dow Jones Industrial Average rose to a record high on Tuesday as investors rotated out of chipmakers and into cyclical stocks amid declining oil prices.
The 30-stock index was up 407 points, or 0.8%. It scored a new all-time intraday high in the session. The S&P 500 fell 0.3%, while the Nasdaq Composite pulled back 0.6%.
Pulling down the tech-heavy Nasdaq, a number of chip stocks suffered losses Tuesday. Advanced Micro Devices dropped more than 5%, while Broadcom and Micron Technology shed more than 3% each. Nvidia lost more than 1%.
Elsewhere, oil prices extended their drop from the prior trading day. Brent crude futures fell 5% to dip below $80 per barrel — the first time since March. U.S. West Texas Intermediate futures declined 5% to around $75 a barrel.
As oil dipped further, shares of Caterpillar led industrials higher, while JPMorgan Chase was a leader among banks higher as investors bet that lower energy prices will spur a re-acceleration in the U.S. economy. Caterpillar was up more than 2%, while JPMorgan advanced more than 3%.
SpaceX also continued to be a standout with its 9% pop, a move that added to its sharp gains since going public last week. With its gains, SpaceX had at one point surpassed both Microsoft and Amazon in market cap during the session. The company priced its initial public offering at $135. It last traded around $210.
The major averages are building on a winning session from Monday, which occurred on the heels of President Donald Trump announcing that the U.S. and Iran had reached a deal to end the war in the Middle East. Pakistani Prime Minister Shehbaz Sharif said that both sides have declared the termination of their military operations on all fronts, with an official signing ceremony to take place this Friday in Switzerland.
Trump also said that the key Strait of Hormuz passageway would reopen on Friday, sending oil prices down nearly 5% on Monday. He later clarified Tuesday that the strait will remain toll free beyond the initial 60-day period.
“We’re not out of the woods yet,” said Andy Goldberg, chief investment strategist at Nomura Asset Management International.
“If all of a sudden oil prices were to come down quickly, the headline inflation number will come down, but at the same time, it’ll put a lot of money back in consumers’ pockets right at a time where they’re feeling pretty good, and that’s how you can get some more inflation,” he added. “Warsh has a balancing act on his hands.”