Stock Indexes Settle Higher as Chipmakers Soar

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +0.89%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.74%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.93%. September E-mini S&P futures (ESU26) rose +0.81%, and September E-mini Nasdaq futures (NQU26) rose +1.82%.

Stock indexes settled higher on Tuesday as a rebound in chipmakers and AI-infrastructure stocks gathered steam. The recent selloff in chipmakers has cheapened valuations, enticing dip buyers ahead of earnings results of megacap technology stocks this week, beginning with Alphabet and Tesla on Wednesday. On the downside, software stocks were weak on Tuesday after Morgan Stanley downgraded several in the sector. Also, rising crude oil prices pushed bond yields higher, with the 10-year T-note yield climbing to a 2-month high of 4.64% on Tuesday.

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A positive start to earnings season is also supporting stock gains. 91% of the S&P 500 companies reporting Q2 earnings results thus far have beaten estimates, according to data compiled by Bloomberg.

WTI crude oil (CLQ26) rose more than +2% on Tuesday to a 5-week high as the US and Iran exchanged strikes for a 10th consecutive day even as mediators sought to revive a truce. The US targeted military command centers, launch sites, and air defenses in Iran today. Meanwhile, Iran attacked US military sites in Kuwait and Jordan. The UK navy also reported Iran struck two vessels around the Strait of Hormuz. President Trump said on Tuesday that the US has "no interest" in meeting with Iran until they are ready for serious peace negotiations.

Also, Houthi rebels on Monday said they will impose a maritime blockade on Saudi Arabia in retaliation for what they say is the kingdom's siege on the Yemeni capital, a potential threat to Saudi Arabian crude exports through the Red Sea. President Trump said Tuesday that if there is a blockade in the Red Sea, the US "will take care of it."

The outlook for strong Q2 earnings, which begin in earnest this week, is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1's blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.

The markets are discounting a 24% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled higher on Tuesday. The Euro Stoxx 50 closed up +0.94%. China's Shanghai Composite closed up +1.79%. Japan's Nikkei-225 Stock Average closed up sharply by +3.26%.

September 10-year T-notes (ZNU6) on Tuesday closed down -7 ticks, and the 10-year T-note yield rose +4.0 bp at 4.632%. Sep T-notes fell to a 1-week low, and the 10-year T-note yield climbed to a 2-month high of 4.638%. WTI crude oil prices jumped more than +2% to a 5-week high on Tuesday, boosting inflation expectations, a hawkish factor for Fed policy. Also, Tuesday's strength in stocks has reduced safe-haven demand for T-notes. Heightened Middle East tensions are supporting safe-haven demand for T-notes after President Trump threatened a disproportionate response for any Americans killed by Iran.

European government bond yields were mixed on Tuesday. The 10-year German bund yield climbed to a 2-month high of 3.185% and finished up +1.3 bp to 3.163%. The 10-year UK gilt yield fell -0.2 bp to 5.030%.

The German Jul ZEW survey expectations of economic growth rose +15.8 to a 5-month high of 26.3, stronger than expectations of 15.3.

Swaps are discounting a 4% chance of a +25 bp ECB rate hike at its next policy meeting on Thursday.

Chipmakers and AI-infrastructure stocks rallied sharply on Tuesday, supporting gains in the overall market. The iShares Semiconductor ETF (SOXX) closed up more than +5%. Sandisk (SNDK) closed up more than +14% to lead gainers in the S&P 500, and Teradyne (TER), Western Digital (WDC), and Micron Technology (MU) closed up more than +12%. Also, Seagate Technology Holdings Plc (STX) closed up more than +11%, and Intel (INTC) closed up more than +9%. In addition, Applied Materials (AMAT), Advanced Micro Devices (AMD) and ARM Holdings Plc (ARM) closed up more than +7%, and Marvell Technology (MRVL) closed up more than +6%. Finally, Lam Research (LRCX) and KLA Corp (KLAC) closed up more than +5%, and ASML Holding NV (ASML), Microchip Technology (MCHP), and Texas Instruments (TXN) closed up more than +3%.

Cryptocurrency-exposed stocks moved higher on Tuesday as Bitcoin (^BTCUSD) rose more than +1% to a 5-week high. Coinbase Global (COIN) closed up more than +9%, and Circle Internet Group (CRCL) and Riot Platforms (RIOT) closed up more than +8%. Also, Galaxy Digital Holdings (GLXY) closed up more than +7%, and Strategy (MSTR) and MARA Holdings (MARA) closed up more than +4%.