Wall Street staged a strong recovery on Tuesday, with the S&P 500 gaining 0.6% to move back within 2% of its record high touched a week ago. The Dow Jones Industrial Average gained 291 points, or 0.6%, while the Nasdaq Composite climbed 0.8%, according to Associated Press. The recovery was primarily driven by a sharp rebound in AI-linked stocks that had come under heavy pressure at the end of last week amid concerns that valuations had risen too rapidly. The Philadelphia SE Semiconductor Index had suffered its largest one-day percentage plunge since March 2020, erasing more than $1 trillion in stock market value during Friday's selloff. As Rick Meckler, partner at Cherry Lane Investments, noted, "Today looks like a day where investors are doing a little bit of bargain hunting off the big tech selloff."
Micron Technology rose 2.5%, adding to a 9.9% rally in the previous session after tumbling 13.3% on Friday, as reported by Associated Press. The stock has still tripled so far this year despite growing concerns that AI-related shares may have run up too far, too quickly. Intel shares jumped after news website the Information reported that Alphabet's Google had placed an order to manufacture more than 3 million tensor processing units in 2028. The recovery comes after a sharp correction in AI-related stocks that had driven much of Wall Street's rally this year, with investors now seeking bargains after the recent selloff. Eli Lilly gained after the drugmaker's trial results showed its next-generation obesity drug, retatrutide, curbed sleep apnea severity in addition to boosting weight loss and helping knee pain.
Investor sentiment also improved as oil prices retreated, with Brent crude falling 2.4% to $92 a barrel after briefly climbing above $98 on Monday, according to Associated Press. The retreat in oil prices eased pressure on investors who had been concerned about elevated energy costs. The lack of progress in U.S.-Iran negotiations is keeping oil prices elevated, with Iran reaffirming its support for Hezbollah and demanding that Israel withdraw its troops from southern Lebanon, further complicating efforts to secure a near-term peace deal. However, the recent easing of Middle East tensions helped support the market recovery, with investors relieved by the de-escalation.
The market decline was compounded by strong jobs data that reinforced expectations of tighter Federal Reserve policy, adding to inflation and rate concerns. The U.S. economy added 172,000 jobs in May, more than double analyst expectations, while the unemployment rate held steady at 4.3%. The robust employment report provided reassurance of U.S. economic health but all but killed any hopes of an interest rate cut from the Fed in the near future. Financial markets are pricing in a 42.7% likelihood of a rate hike at the conclusion of the Fed's December meeting, according to CME's FedWatch tool. As Ryan Detrick noted, "The stronger-than-expected jobs report puts the Fed in a tough spot regarding any interest rate cut for the rest of the year."
Market breadth indicated strong recovery momentum with 2,765 stocks rising and 1,908 falling on the Nasdaq, as advancing issues outnumbered decliners by about a 1.45-to-1 ratio. There were 127 new highs and 163 new lows on the Nasdaq, while on the New York Stock Exchange, advancing issues outnumbered declining ones by a 1.3-to-1 ratio with 105 new highs and 126 new lows. S&P 500 technology led gains among sectors, increasing 1.8%, while the Philadelphia SE Semiconductor Index advanced 6.2%, rebounding from Friday's losses. Looking ahead, SpaceX's initial public offering on Friday could also prove a major test for U.S. stock markets, with investors wary of possible overexuberance. The Economic Times reports that investors may be having a "sell-on-the-news" response, with Bruce Zaro noting that "Perception has been for quite some time that Apple had been behind the curve as far as their AI offerings."
