US equities rallied strongly on Monday after President Trump said he would delay a planned military strike on Iran, opting instead to pursue further diplomatic efforts. The announcement triggered a sharp reversal in energy markets, with WTI crude falling around 5 to 7% to near $80 a barrel, and a rebound in risk appetite across US trading floors.
Major indices post broad based gains
The Dow Jones Industrial Average closed at a fresh record high, while the S&P 500 and Nasdaq Composite also posted gains of more than 1%. Consumer discretionary and communication services were among the strongest performers, alongside lower Treasury yields, with the 10-year US Treasury yield slipping below 4.7% and boosting risk appetite. Large technology names including Microsoft, Alphabet and Oracle were prominent contributors to the advance.
Manufacturing data and earnings season add support
Beyond the geopolitical backdrop, economic data also underpinned sentiment. The ISM Manufacturing PMI improved to its highest level since May 2022, pointing to a continued recovery in factory activity. Investors are now turning their attention to a dense week of corporate results, with more than 100 S&P 500 companies scheduled to report, alongside key labour market indicators including JOLTS job openings, the ADP private payrolls report and Friday’s non farm payrolls release. Second quarter earnings so far have remained robust, while resilient labour market conditions continue to reinforce expectations of a supportive backdrop for US equities.
Asian and European markets track the global upswing
Asian markets nurse a cautious technology rebound
Asian equities traded mostly higher on Tuesday as investors edged back into technology names following a sell-off in AI related stocks during July. Chinese equities led regional gains, while Australia’s ASX 200 touched a fresh record high. Japanese markets remained under pressure and Hong Kong shares slipped modestly. Investors now await US labour market data and further corporate earnings for direction.
US equity futures also edged higher overnight after President Trump reiterated that discussions with Iran were ongoing, with contracts tied to the S&P 500, Nasdaq 100 and Dow all posting modest gains ahead of the New York open. In after hours trading, Palantir surged nearly 14 percent following strong quarterly results, while investors awaited earnings from SpaceX, AMD and Caterpillar.
European shares extend their record breaking run
European markets reached fresh all time highs on Monday, supported by falling energy prices and lower sovereign bond yields as the diplomatic shift on Iran filtered through to regional trading. The Euro STOXX 50 rose 1.2%, while the broader STOXX Europe 600 gained 0.4%. Banking, insurance and technology stocks led the advance, with Germany’s SAP and Deutsche Telekom among the session’s stronger performers.
Currencies and commodities react to shifting risk appetite
The dollar steadies while the euro holds firm
The US dollar index hovered near the 100 level after rebounding on Monday as investors weighed the Federal Reserve’s policy path, with markets currently assigning roughly a 65% probability to a 25 basis point rate hike at the September meeting. Attention now turns to JOLTS job openings and trade balance data for further clarity. Despite the dollar’s modest recovery, the euro has remained resilient, trading at 1.1512 against the greenback.
Oil prices stabilise after a sharp Monday sell-off
Crude prices edged modestly higher in Asian trading after plunging nearly 5% on Monday, when West Texas Intermediate traded near $81 a barrel and Brent crude traded around $84. The move came as markets weighed conflicting messages over potential US-Iran negotiations. Investor focus remains firmly fixed on developments around the Strait of Hormuz, a critical artery for global oil flows, while softer US crude export volumes have also kept traders on alert.
Stocks on the move as earnings season delivers standout results
Technology and consumer names lead the earnings reaction
Palantir shares jumped more than 14% in after hours trading after the data analytics group posted second quarter revenue and earnings well ahead of forecasts and raised its full year revenue forecast for a second time, driven by strong demand from both government and commercial customers. Management pointed to robust growth in its US AI business as reinforcing confidence in the company’s long-term growth prospects.
Snap shares rose 13% in after hours trading after second quarter revenue increased 19% to $1.6 billion, supported by stronger advertising demand and spending tied to the FIFA World Cup. Daily active users reached 493 million, although the company continues to face intense competitive pressure from larger rivals such as Meta.
Amazon shares advanced 5% after a blowout quarterly report, pushing the company’s market capitalisation above $3 trillion for the first time. Growth was driven by an acceleration in Amazon Web Services and AI-related demand. Microsoft, Meta, Alphabet and Oracle also gained, as investors gained confidence that major technology companies remain committed to expanding AI investment.
Alibaba shares also gained after the group unveiled Qwen 3.8-MAX, its latest AI model, featuring improved reasoning, coding and multimodal capabilities delivered at lower cost. Analysts at Citi noted that Alibaba’s integrated approach across chips, cloud infrastructure and applications leaves it well placed as enterprise customers increasingly favour a model agnostic strategy amid intensifying competition in generative AI.
AstraZeneca shares came under pressure following reports that the drugmaker had held merger discussions with Bristol Myers Squibb regarding a tie up valued at US$400 billion. Investors questioned the strategic logic of such a deal, arguing that AstraZeneca’s existing drug pipeline already supports solid organic growth, even as a combination could strengthen its US footprint and deliver cost efficiencies. Concerns remain over execution, innovation and regulatory scrutiny.
Elsewhere, President Trump criticised ExxonMobil and Chevron over what he described as excessive profits linked to higher fuel prices, calling on the companies to pass more of their earnings gains through to consumers. The comments followed strong quarterly results from both energy majors, with elevated petrol prices remaining a politically sensitive topic ahead of November’s midterm elections.
Brokers reposition across technology, industrials and defence
Deutsche Bank lifted its S&P 500 earnings forecasts for 2026 and 2027, citing stronger-than-expected second-quarter results and pointing to record breaking earnings beats, rising sales and improving margins across a broader range of sectors, suggesting growth is becoming less reliant on megacap technology names alone, with AI beneficiaries and other industries contributing more evenly. Separately, the bank said the recent rotation back into technology stocks has further room to run after the sector attracted US$15.6 billion of inflows last week, with hyperscalers cited as particularly attractively valued relative to the wider S&P 500. Equity fund inflows strengthened overall, while demand for bonds and money market funds eased.
Morgan Stanley forecasts global cloud capital expenditure could reach approximately $1.2 trillion by 2027, arguing that demand continues to outstrip supply and that consensus estimates remain too conservative given the pace of hyperscaler investment. Higher spending by major hyperscalers, accelerating cloud growth and strong AI adoption support the outlook, with further investment likely as capacity expands. Goldman Sachs, meanwhile, argued that the biggest risk facing the technology sector is sustaining earnings growth rather than elevated valuations. Valuation premiums have normalised, but earnings expectations remain high, and market leadership is broadening beyond US technology into industrials and other traditional sectors benefiting from AI related capital spending, creating fresh opportunities for selective investors.
Citi described the recent semiconductor sell-off as a buying opportunity, citing resilient data centre demand and rising AI-related capital expenditure, with AMD, Texas Instruments and Applied Materials named as preferred names. The bank expects continued earnings support from cloud investment and recovering industrial and automotive demand, despite weaker consumer electronics sales. Goldman Sachs added Microsoft, Applied Materials, Delta Air Lines, O’Reilly Automotive, Viking Holdings and UPS to its US Conviction List, citing broadening market leadership, while removing Broadcom, ServiceNow, Johnson & Johnson and Dick’s Sporting Goods. Microsoft’s AI monetisation and Applied Materials’ semiconductor exposure are viewed as particularly attractive.
Among smaller cap movers, Truist Securities upgraded Corning to Buy following a 45% July share price decline, citing AI data centre investment, optical networking demand and margin expansion as growth drivers through 2029, with risks including slower AI spending, weak consumer markets and inflation pressures. RBC upgraded Legrand to Outperform after strong second-quarter growth driven by data centre demand prompted the company to raise guidance, as AI infrastructure investment boosts sales, with RBC expecting faster long-term growth supported by expanding data centre exposure, geographic diversification and resilient margins, while viewing risks from new technologies as manageable. Barclays lifted Thales to Equal Weight on improving defence margins, reduced cyber risks and better execution in space, alongside stronger export demand and product mix supporting profitability, while acquisition uncertainty has eased, though slower growth versus peers, cautious capital allocation and French market exposure limit further upside potential. UBS moved in the opposite direction on Stellantis, downgrading the automaker to Neutral despite favourable market conditions, citing limited progress in its US turnaround, higher inventories, weaker product demand and rising competition pressuring margins, cutting earnings forecasts and its price target, though retaining some optimism given North America’s potential and possible recovery in market share.
Upcoming economic data and earnings to watch
Investors face another busy session, with a mix of US economic releases and high profile corporate results due. Key data points include JOLTS job openings, trade figures, factory orders and vehicle sales, all of which will offer fresh signals on the health of the US economy. On the earnings front, markets will be watching results from AMD, Caterpillar, HSBC, Saudi Aramco, Merck, Amgen, McDonald’s and Arista Networks, with particular focus on commentary around artificial intelligence spending, industrial demand and the resilience of the US consumer.
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