AI optimism lifts Wall Street
The Nasdaq ended Tuesday with its strongest quarterly performance in six years, as enthusiasm around artificial intelligence outweighed concerns over inflation, geopolitics and the outlook for interest rates.
The technology-heavy index rose 1.5% in the session to 26,213.72. Over the three months through June, it gained 21.4%.
Major U.S. indices finish higher
The S&P 500 and the Dow also advanced, with the Dow closing at a record high for the second consecutive session.
The Dow rose 0.3% to 52,319.20, while the S&P 500 climbed 0.8% to 7,499.36.
“Very often when we have a really good quarter, you see profit-taking on the last day,” said Chris Low of FHN Financial. “We’re not seeing that today which shows optimism about the third quarter as well.”
Oil pullback improves sentiment
Part of the market’s improved tone came from lower energy prices after the United States and Iran reached a memorandum of understanding connected to the Middle East war.
The agreement has helped increase tanker traffic through the Strait of Hormuz, easing some fears about disruptions to global energy supplies.
“If we go into the second half of the year with lower energy prices, that should help restore GDP growth,” Low said.
AI shares regain momentum
Stocks linked to artificial intelligence had weakened in recent weeks as investors questioned whether valuations had risen too far.
Tuesday’s trading showed a return of the same AI-driven appetite that dominated much of the quarter, helping large technology shares recover ground.
Europe closes in positive territory
European markets also ended higher.
London’s FTSE 100 added 0.1% to 10,497.12, Paris’s CAC 40 gained 0.4% to 8,403.99 and Frankfurt’s DAX advanced 1.5% to 24,995.81.
Asian tech stocks recover
Asian markets had a mixed start but technology shares gained traction during Tuesday’s session.
South Korea’s Kospi rose 1%, although it remained below the recent record high reached before last week’s selloff.
The index, which includes chipmakers SK hynix and Samsung, surged almost 68% during the quarter.
Yen falls to 40-year lows
In Japan, attention centered on the yen as traders weighed the possibility of government intervention in currency markets.
The yen dropped to 40-year lows against the dollar, touching 162.67 per dollar, as investors bet the U.S. Federal Reserve could raise interest rates this year.
The dollar traded at 162.59 yen around 2020 GMT, up from 161.92 yen on Monday.
Fed expectations pressure currencies
Markets are now waiting for U.S. jobs data due Thursday, which could strengthen expectations for a faster Federal Reserve rate hike if the numbers come in above forecasts.
“If the jobs report comes in strong, it could put upward pressure on yields as investors price in higher odds of a July rate hike,” said Bret Kenwell, analyst at eToro.
The Bank of Japan’s decision this month to lift borrowing costs to a 31-year high did little to support the yen.
Japan warns on possible intervention
Japanese officials have continued to signal concern over the yen’s weakness.
Finance Minister Satsuki Katayama was reported by local media as saying Tuesday that Tokyo “will take appropriate action at any time as necessary.”
Warsh’s Fed stance strengthens the dollar
Axel Rudolph, analyst at IG, said the dollar has been supported by the arrival of new Federal Reserve chair Kevin Warsh.
“A major catalyst behind the dollar’s move has been the arrival of new Federal Reserve chair Kevin Warsh, whose public comments have been interpreted as notably more hawkish” than President Donald Trump may have wanted, Rudolph said.
He added that Warsh has stressed the need to preserve the Fed’s inflation-fighting credibility and has shown willingness to keep policy restrictive if price pressures persist.
Rates remain a risk for equities
The prospect of higher U.S. interest rates has widened the expected policy gap between the United States and many major trading partners, increasing demand for dollar-denominated assets.
At the same time, higher borrowing costs could become a headwind for U.S. stocks in the second half of the year.
Market levels at the close
Tokyo’s Nikkei 225 rose 0.9% to 70,062.32. Hong Kong’s Hang Seng fell 0.6% to 22,881.02, while Shanghai’s Composite gained 0.5% to 4,094.40.
The euro slipped to $1.1418 from $1.1422, while the pound eased to $1.3256 from $1.3258. The euro also edged down to 86.13 pence from 86.16 pence.
Brent North Sea crude fell 0.3% to $72.92 a barrel, and West Texas Intermediate dropped 1.8% to $69.50 a barrel.