Dow Closes at Record as Oil Plunge on Iran Talks Optimism Fuels Broad Rally

U.S. stocks kicked off August with a broad rally, sending the Dow Jones Industrial Average to a record high close as crude prices tumbled more than 5% on hopes of de-escalating tensions between the U.S. and Iran.

The Dow rose 693.38 points, or 1.32%, to 53,178.41. The S&P 500 gained 110.78 points, or 1.48%, to 7,600.50, and the Nasdaq Composite surged 540.04 points, or 2.13%, to 25,913.90.

The catalyst was a sharp reversal in oil prices after President Trump said on Sunday that talks with Iran to reopen the Strait of Hormuz would take place Monday, though Iranian officials disputed that discussions with Washington were planned. According to multiple sources, Trump said he had called off a planned military strike on Iran “subject to being able to rapidly make a DEAL,” and that “there’s a deal on Hormuz, and there will be a deal on the nuclear.”

Iran’s Foreign Ministry spokesperson said the country and Oman were close to an agreement on a new route through the Strait of Hormuz, but added that the waterway “will in no way return to the status it was before February 28th.”

Brent crude settled down about 4.9% to $83.65 per barrel, according to one report, while another cited a 6% decline to $82.95. West Texas Intermediate fell nearly 7% to $78.93. The drop in energy prices eased concerns that inflation would accelerate further, pushing Treasury yields lower. The benchmark 10-year U.S. Treasury yield declined to around 4.68%, down from 4.75% at Friday’s close.

“Every day, everybody wakes up and looks at the price of a barrel of oil and the yield on the 10-year, and if that’s going lower, the market’s OK, and if it’s going higher, the market’s not good whatsoever,” said Art Hogan, chief market strategist at B. Riley Wealth in Boston, as reported by the Star-Advertiser.

Sector and Stock Movers

Communication services was the best performing S&P 500 sector, climbing 4.3% on the back of gains from Meta Platforms and Alphabet. Energy dropped 1.2% as the worst performer. The “Magnificent Seven” tech stocks were mostly higher in premarket trading, with Amazon, Alphabet, Microsoft, and Meta each up more than 1.5%.

Amazon shares advanced 4.6% for the day, pushing its market capitalization above $3 trillion for the first time after its earnings results last week. SpaceX, which will report its first quarterly results since going public on Tuesday, jumped 5.6%, according to the Star-Advertiser.

Airlines and cruise operators benefited from lower fuel costs. United Airlines gained 5.6%, American Airlines advanced 5.7%, and Norwegian Cruise Line Holdings rose 5.4%, as reported by the Times of India.

Semiconductor stocks remained under pressure. Micron Technology fell 4.9%, and Advanced Micro Devices declined 2.7%, according to the same report. The Kospi index in South Korea dropped 5.1%, reversing Friday’s record 17.9% rally, as heavyweights Samsung Electronics and SK Hynix plunged nearly 9% each.

Bristol Myers Squibb shares edged up 0.2% after a report of preliminary merger talks with AstraZeneca. A deal could form one of the world’s biggest drugmakers, valued at nearly $400 billion, according to the Star-Advertiser. Marriott International slumped 7% after forecasting third-quarter profit below expectations.

Earnings and Fed Outlook

Earnings season remained strong. Through Friday, 304 companies in the S&P 500 had reported results, showing a 29.3% growth rate with 85.2% beating analyst estimates, according to LSEG data cited by the Star-Advertiser.

Markets are pricing in a 64.5% chance of a rate hike of at least 25 basis points at the Federal Reserve’s September meeting, according to the CME FedWatch tool. New York Federal Reserve President John Williams expressed optimism that inflation pressures would ease gradually, the Star-Advertiser reported.

Investors this week will receive several readings on the labor market, culminating with the government jobs report on Friday. The consensus expectation for non-farm payrolls is around 75,000 to 80,000 new jobs, according to ING’s Chris Turner as cited by Fortune, “probably not quite weak enough to rule out a Fed hike.”

“It seems the only way the Fed can avoid hiking in September is if the U.S. data is poor enough,” Turner said.

Advancing issues outnumbered decliners by a 2.62-to-1 ratio on the NYSE and by a 3.01-to-1 ratio on the Nasdaq. The S&P 500 posted 15 new 52-week highs and one new low, while the Nasdaq Composite recorded 121 new highs and 96 new lows. Volume on U.S. exchanges was 19.36 billion shares, above the 17.66 billion average over the last 20 trading days.