United States stock indexes closed higher on Thursday (Friday AEST), led by a sharp rally in semiconductor shares and improving investor sentiment following a peace agreement between the United States and Iran, although markets continued to factor in the prospect of further interest rate increases from the Federal Reserve later this year.
The Dow Jones Industrial Average rose 72.2 points, or 0.1%, to 51,564.7. The S&P 500 gained 80.5 points, or 1.1%, to finish at 7,500.6, while the Nasdaq Composite jumped 496.3 points, or 1.9%, to close at 26,517.9.
Small-cap stocks also participated in the advance, with the Russell 2000 index climbing 61.8 points, or 2.1%, to a record closing high.
Technology stocks drove much of the market's gains, with the Philadelphia Semiconductor Index surging 6.4%.
Intel shares jumped 10.6% to a record high after U.S. President Donald Trump said in a post on Truth Social that Apple had agreed to work with the chipmaker to design and manufacture semiconductors in the United States.
Investor sentiment was further supported by developments in the Middle East. Oil prices fell to their lowest levels since early March after the United States and Iran signed an interim agreement extending the April ceasefire by a further 60 days while negotiations continue toward a permanent settlement.
Although Trump warned military action could resume if Iran failed to meet its obligations under the agreement, the reopening of the Strait of Hormuz eased concerns about disruptions to the movement of oil, gas, fertiliser and other cargoes through the key shipping route.
The gains followed a sharp sell-off on Wednesday, when all three major Wall Street indexes declined after investors increased expectations for higher interest rates. Markets reacted to comments from Federal Reserve Chair Kevin Warsh, who highlighted the need to keep inflation under control, while other policymakers also indicated borrowing costs could rise further.
According to the CME Group FedWatch Tool, traders are currently pricing in a 39.6% probability of a 25-basis-point rate increase at the Fed's next policy meeting.
Among individual companies, consulting firm Accenture fell 18% after lowering the top end of its annual revenue guidance.
Supermarket operator Kroger declined 8.4% after reporting first-quarter earnings that missed market expectations while maintaining its full-year outlook.
Shares of SpaceX fell 3.6%, marking a second consecutive session of declines. The stock has retreated after a strong rally in the days following its Nasdaq debut last week.
Economic data released during the session provided some reassurance on the labour market. The Labor Department reported that initial claims for unemployment benefits declined last week, indicating layoffs remain subdued despite concerns over economic growth and inflation.
U.S. financial markets are scheduled to be closed on Friday in observance of the Juneteenth holiday.
On the bond markets, Treasury yields edged lower, with the 10-year yield falling 0.7% to 4.455% and the two-year yield declining 0.2% to 4.179%.
