Wall Street closed sharply higher on Monday to start August trading. This was primarily due to a fall in crude oil prices due to the de-escalation of the Middle East war. Following this, AI trade rebounded from a volatile July. Strong economic data also boosted market participants’ sentiment. All three major stock indexes ended in positive territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) advanced 1.3% or 693.38 points to close at 53,178.41, marking a new all-time closing high. Notably, 19 components of the 30-stock index ended in positive territory and 11 ended in negative territory. At the intraday high, the blue-chip index was up more than 745 points.
The tech-heavy Nasdaq Composite finished at 25,913.90, climbing 2.1% or 540.04 points on strong performance by AI giants. The S&P 500 appreciated 1.5% to finish at 7,600.50. However, seven out of 11 sectors of the broad-market index ended in negative territory while four finished in positive territory.
The Consumer Discretionary Select Sector SPDR (XLY), the Communication Services Select Sector SPDR (XLC) and the Energy Select Sector SPDR (XLE) gained 3.3%, 1.6% and 1%, respectively. On the other hand, the Materials Select Sector SPDR (XLB) tumbled 2.3%.
The fear gauge CBOE Volatility Index (VIX) fell 0.8% to 15.86. A total of 19.36 billion shares were traded on Monday, higher than the last 20-session average of 17.66 billion. Advancers outnumbered decliners on the NYSE by a 2.62-to-1 ratio. On the Nasdaq, a 3.01-to-1 ratio favored advancing issues.
De-escalation of Middle East War
The ongoing war between the United States and Iran has cooled to some extent since last weekend. On Aug. 2, President Donald Trump announced the cancellation of a planned attack on Iran due to some positive developments. The President said in his Truth Social post, “We have just been asked by Iran, and other Middle Eastern Countries, to hold off any attack in that the perimeters of a deal has been agreed to.”
Following these developments, crude oil prices declined. The U.S. benchmark — West Texas Intermediate — futures settled down 5.1% at $80.34 per barrel. The international benchmark — the Brent — dropped 4.7% to settle at $83.77 per barrel.
Lower crude oil prices reduced the fear of a higher inflation rate. Consequently, yields on U.S. Treasury Notes for various time periods declined. A lower market risk free return is favorable to growth sector like technology, especially the AI-centric stocks.
AI Trade Rebounds
AI trade is gathering steam after last month’s softness. AI infrastructure trade is now expanding from chips to memory and storage devices as well as servers and racks. Moreover, agentic AI is expanding the scope of AI infrastructure providers in the physical layer.
Stock prices of major AI hyperscalers like Meta Platforms Inc. META, Amazon.com Inc. AMZN, Alphabet Inc. GOOGL and Microsoft Corp. MSFT climbed 6%, 4.6%, 4.9% and 4.9%, respectively. The four stocks currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Economic Data
The Institute of Supply Management reported that the manufacturing purchasing managers’ index (PMI) for July came in at 55.6, marking its best monthly reading since May 2022. The Zacks Consensus Estimate was 53.8. The metric for June was 53.3. Any reading above 50 indicates expansion in manufacturing activities.
Construction spending contracted by 0.1% in June compared with an expansion of 0.1% in May. The Zacks Consensus Estimate was 0.3%.
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