US shares reached fresh records on Tuesday, even as a growing list of challenges continued to weigh on markets.
The S&P 500 climbed 0.6% to a record after topping its prior all-time high set in August. Despite worries about everything from war to high inflation and pressure from the bond market, the index has soared 23% since hitting a bottom in late March.
The Dow Jones Industrial Average added 253 points, or 0.5%, while the Nasdaq composite added 0.4% to its own all-time high set the day before.
Many of the fears that sent the US stock market to its bottom in March have come true. Oil prices are high because of the war with Iran, which has made inflation worse. Yields have moved higher in the bond market, threatening to slow the economy by making it more expensive to borrow.
But one vital source of support has remained resilient throughout: the ability of companies to make more money.
Profit expectations stay strong
Analysts expect companies in the S&P 500 to deliver overall growth of nearly 30% in earnings per share from a year earlier, according to FactSet. If they're correct, it would be the third straight quarter of growth better than 25%.
That's crucial because corporate profits are one of the main levers that set prices for stocks, along with interest rates.
At the moment, high bond yields are making investors less willing to pay high prices for investments that aren't bonds. But the simultaneous strength in corporate profits is allowing the market to stay high and "to win the tug-of-war against yields", according to strategists at Barclays.
Much hinges on companies actually meeting those expectations for fatter profits. If they fail to do so, stock prices could easily fall from their records.
AI boom lifts power stocks
Some critics also point to a possible bubble in artificial intelligence stocks after their surge during the frenzy around the technology.
AI stocks have been a huge force driving the US market to records, including Nvidia's 28.3% surge so far this year. That's roughly double the broad market's gain.
Constellation Energy jumped 12.2% for one of Tuesday's biggest gains in the S&P 500.
It announced a long-term deal to supply Google with about as much electricity as a new nuclear reactor produces. The boom in AI data centres has made not just electricity more in demand but also construction crews and materials throughout the economy.
Elsewhere on Wall Street, Option Care Health soared 32.6% after CD&R and McKesson said they're buying the provider of infusion services. The two are paying $US32.05 for each Option Care Health share, valuing it at roughly $US5.8 billion.
All told, the S&P 500 rose 44.98 points to 7,818.93. The Dow Jones Industrial Average added 253.38 to 51,521.28, and the Nasdaq composite climbed 122.48 to 27,599.79.
Bond yields ease
Bond yields offered some relief on Tuesday after falling back from their highest levels in years or even decades. The yield on the 10-year Treasury, which is the focal point of the US bond market, eased to 5.28% from 5.31% late on Monday.
It fell after oil prices steadied somewhat. The price for a barrel of Brent crude oil, the international standard, dropped to roughly $US97 in the morning before pulling back to settle at $US100.58. While that was up 0.3% from Monday's settlement price, it's still below the nearly $US110 it was at a few weeks ago.
Indexes ticked higher in Europe as yields continued to swing in bond markets amid concerns about high government debts and tight budgets.
