U.S. stocks bounced back on Tuesday, with investor sentiment improving as oil prices fell and the market assessed the escalating tensions in the Middle East.
The S&P 500 added 1% to close at 5,751.1, the Nasdaq Composite climbed 1.5% to end at 18,182.9 and the Dow Jones Industrial Average gained 126.1 points, or 0.3%, finishing at 42,080.4.
West Texas Intermediate (WTI) oil futures dropped 4.6%, as traders weighed Israel’s expected retaliation to missile attacks from Iran and U.S. efforts to contain the conflict.
The drop in oil prices pressured the energy sector, with the S&P energy index falling 2.6%. Major energy companies were hit hard, with Marathon Petroleum declining 7.7% and Valero Energy down 5.3%.
Technology stocks were the driving force behind Tuesday’s rally, with Nvidia and Broadcom up 4% and 3%, respectively. Meta Platforms, Tesla, and Microsoft also posted gains of over 1%, while cybersecurity firm Palo Alto Networks surged 5%.
The tech sector’s strong performance helped lift the broader market, countering concerns over rising bond yields.
Despite the rally, market volatility has increased at the start of the new trading month, driven by concerns over the conflict in the Middle East and rising bond yields. Last week’s strong jobs report initially buoyed markets, with the Dow hitting a new all-time closing high.
However, enthusiasm faded as investors reassessed the Federal Reserve's approach, considering that a strong labour market might lead to less aggressive rate cuts in the future.
On the bond markets, 10-year and 2-year rates were at 4.104% and 3.962%, respectively.