S&P, Nasdaq hit records as oil prices stabilise

US stocks finished in the green on Tuesday as oil prices stabilized and US Treasury yields decreased, offering a brief respite from the worries that have dominated investor concerns recently. The S&P 500 and Nasdaq reached record closing highs, with the Dow remaining slightly below its all-time peak from August 5. Oliver Pursche, a senior advisor at Wealthspire Advisors, explained that when oil prices stabilize or decline, it reduces anxiety about energy-driven inflation, which in turn lifts stocks.

Six of the Magnificent Seven AI-linked mega-cap companies gained, propelling the rally, while small-cap stocks trailed behind. The AI sector continues to show strength, with the Philadelphia Semiconductor Index performing well. Trade data revealed that capital goods imports increased by 4.4% in August, while the US trade deficit expanded by 13.7%, reflecting solid domestic demand, which could exacerbate inflation pressures, especially with supply constraints from the Iran conflict.

Market expectations for a second consecutive Fed rate hike at the current meeting fell to 19.4%, down from 50.9% the previous week, according to CME's FedWatch tool. This sentiment shift was influenced by oil prices, which spiked due to the Iran war but eased after the G7 nations agreed to release emergency stockpiles of diesel and crude, stabilizing WTI and Brent crude futures.

Tim Ghriskey, a portfolio strategist, stated that he doesn't anticipate the Fed to take any action at the upcoming meeting, but believes they are in a gradual hiking cycle.

High oil prices have impacted many consumers, contributing to recent inflation concerns. The S&P 500 increased by 0.6% to 7,818, the Dow rose 0.5% to 51,521, and the Nasdaq gained 0.5% to 27,599. Third-quarter earnings season is set to begin next week, with major financial companies expected to report next Tuesday.