Dow and S&P 500 rise as AI momentum offsets US-Iran tensions

The S&P 500 and Dow Jones rose on Wednesday as investors weighed renewed clashes between the United States and Iran against signs of continued strength in artificial intelligence-related investment.

The Dow Jones Industrial Average gained 246.01 points, or 0.47%, to 53,012.89, while the S&P 500 rose 8.22 points, or 0.11%, to 7,639.69. The Nasdaq Composite slipped 14.92 points, or 0.06%, to 26,084.86.

Among notable stock movers, Dell shares jumped 6.7% after the company raised its full-year earnings and revenue forecasts.

Brown-Forman shares also climbed 4.2% after the maker of Jack Daniel’s beat first-quarter earnings estimates.

Performance among the “Magnificent Seven” stocks was mixed. Nvidia gained 1.2%, while Microsoft and Tesla fell 0.5% and 1%, respectively.

The latest strikes pushed geopolitical tensions back to the forefront of investors’ attention, ending the fragile calm of recent weeks and reviving inflation concerns after the largest exchange of fire between the United States and Iran since July raised fears of a broader regional conflict.

However, the artificial intelligence-driven growth engine supported investor sentiment, with markets betting that a limited degree of macroeconomic uncertainty will not be enough to derail the technology sector’s upward momentum.

Rising Treasury yields weigh on stocks

Stocks came under pressure from elevated risk-free US Treasury yields, which reduce the appeal of taking on the additional risk associated with equities.

The 10-year US Treasury yield fell two basis points on Wednesday after rising earlier in the session, but remained close to its highest level since January last year.

Any further escalation in the Middle East could complicate the interest rate outlook. Over the past week, traders have sharply increased bets on a September rate hike after Federal Reserve Chair Kevin Warsh said containing price pressures remains the central bank’s primary focus.

Markets are currently pricing in a 66.2% probability of an interest rate hike in September, according to CME’s FedWatch Tool, compared with around 37% a week ago.

Investors are also contending with seasonal weakness in equities. Since 1926, the S&P 500 has fallen by an average of 0.7% in September, making it the weakest month for stocks and the only month with a negative average return, according to Fisher Investments, citing Finown data.

Energy stocks edged lower after being among the few sectors to post gains in recent sessions, as Brent crude gave up gains recorded earlier in the day. Valero Energy shares fell 0.3%, while Chevron was little changed.

Investors will also be watching Friday’s employment report, which could help determine the direction of equities. Recent inflation data have provided mixed signals.