The U.S. stock market is on a bullish trajectory, nearing a record high. This rise comes as companies report significant profit gains and oil prices decline. As of Tuesday, the S&P 500 increased by 1.2%, poised to surpass its previous peak set months earlier. The Dow Jones Industrial Average added 767 points, or 1.4%, reaching its own record set the day before. The Nasdaq composite climbed by 1.8% at 11:15 a.m. Eastern time.

Concerns about high inflation, conflict in Iran, and potential stock price bubbles due to artificial intelligence enthusiasm persist. Nonetheless, the rally in Wall Street largely stems from robust corporate earnings. Stock prices tend to correlate with corporate profits over time.

Key Contributors to the Rally

Leading the charge, Palantir Technologies surged by 26.4%. CEO Alex Karp reported a 93% increase in revenue during what he described as an “otherworldly” quarter. The AI company also exceeded profit predictions for the spring and has revised its annual revenue forecast for 2026.

Caterpillar saw an increase of 5.7% after revealing better-than-expected profit and revenue figures. The company surpassed $20 billion in quarterly sales and revenue for the first time. CEO Joe Creed noted strong order rates and a growing backlog in its core business areas. Caterpillar also benefits from the AI boom, with increased orders for turbines powering data centers.

McDonald’s shares rose by 1.7% after exceeding analysts’ spring profit forecasts, despite consumers facing high gas prices and economic concerns. Companies like Amazon and Microsoft have also reported stronger-than-anticipated earnings.

Earnings Growth and Market Valuation

According to FactSet data, S&P 500 companies anticipated nearly 50% growth in earnings per share for the spring from a year earlier. This is the most substantial increase since the spring of 2021 when the economy was recovering from the COVID-19 pandemic.

Phil Segner, a co-portfolio manager at the Leuthold Group, highlighted that with corporate profits up significantly and stock prices relatively unchanged from two months ago, stocks are not overpriced as they once appeared.

Impact of Oil Prices

The recent drop in oil prices also supports the market’s rise. Brent crude fell by 3.8%, reaching $80.58 per barrel, as optimism replaced fear in the oil market. The price had fluctuated between $72 and $102 in July due to uncertainties regarding the conflict in Iran and the free movement of oil tankers from the Persian Gulf.

This decrease in oil prices alleviated inflation concerns, consequently lowering yields in the bond market. The 10-year Treasury yield dropped to 4.64% from 4.70% on Monday and 4.75% last week. Despite the decrease, this yield remains higher than its pre-Iran conflict level of 3.97%. Higher yields elevate borrowing costs for both individuals and corporations.

Economic Indicators and Global Market Trends

U.S. economic reports indicate resilience despite persistent inflationary pressures. In June, employers advertised nearly 7.4 million job openings, slightly below May’s figures but aligning with economists’ projections. Internationally, stock indexes increased modestly across Europe and Asia. In South Korea, the Kospi rose by 1.6%, driven by AI-focused companies like Samsung Electronics and SK Hynix. The Kospi had previously experienced significant fluctuations.

In the U.S., stocks of computer chip companies strengthened, with Broadcom rising by 5.1%, Nvidia by 1.7%, and Micron Technology by 7.6%. These gains contributed significantly to the S&P 500’s overall increase.