Wall Street rallies on renewed hopes for US-Iran talks, earnings boost

The Nasdaq climbed 2% while the S&P 500 finished up 1% and near its record closing high on increasing optimism about the prospects for a Middle East resolution while investors also assessed the latest batch of bank earnings and US inflation readings.

Talks to end the Iran war could resume in Pakistan over the next two days, US President Donald Trump told the New York Post on Tuesday, after the collapse of weekend negotiations prompted Washington to impose a blockade on Iranian ports.

Meanwhile, the US State Department said Israel and Lebanon had agreed to launch direct negotiations at a mutually agreed-upon time and place after a US-hosted meeting in Washington on Tuesday, although it was not immediately clear if they agreed to a framework for peace.

With volatile oil prices dramatically impacting inflation expectations, the market has been highly sensitive to developments in the Middle East, with any headlines about setbacks sending stocks lower, while even tentative signs of an off-ramp have been sufficient to encourage investors eager for positive news.

"We don't have a resolution yet but investors don't want to miss the rebound," said Burns McKinney, portfolio manager at NFJ Investment Group, Dallas.

Meanwhile, Tuesday's inflation data provided some encouragement as US producer prices increased less than expected in March as the cost of services was unchanged. Ameriprise chief market strategist Anthony Saglimbene also cited a solid start to the US earnings season as a boost for stocks.

"The market is kind of moving past this concept of peak uncertainty. There's been a lot of uncertainty in the market, whether that's coming from the Iran conflict, AI disruption fears, inflation concerns or Federal Reserve policy concerns," Saglimbene said.

"Markets are starting to kind of walk away from some of the worst-case scenarios for these events and because valuations have improved over the last couple of weeks and months, investors are buying the dip right now."

The S&P 500 gained 81.14 points, or 1.18%, to finish at 6,967.38 compared with its record close of 6978.60 on January 27. On Monday the benchmark index had closed above its finish on February 27 - the last trading day before the US and Israel started their war against Iran.

The Nasdaq Composite gained 455.35 points, or 1.96%, to 23,639.08 for its tenth daily advance in a row. The Dow Jones Industrial Average rose 317.74 points, or 0.66%, to 48,535.99, marking its highest close since early March.

Only three of the S&P 500's 11 major industry sectors lost ground with energy down 2.2%, leading declines as oil prices fell.

In technology, software stocks rallied for a second straight day to close up 1.6% while the Philadelphia Semiconductor index finished up 2% for its fifth record close in a row.

EARNINGS ENCOURAGEMENT

On the earnings front, BlackRock shares rallied 3% after the asset manager reported a rise in first-quarter profit, helped by strong inflows into its exchange-traded funds and a sharp increase in performance fees.

Citigroup shares closed up 2.6% after hitting their highest level since late 2008 following earnings that beat first-quarter profit estimates.

However, JPMorgan had a less enthusiastic reception to its first-quarter results, while Wells Fargo shares fell after interest income fell short of market expectations.

While the market reaction was mixed, NFJ's McKinney said, the earnings reports and executive commentary "show that the economy has been sturdy and is holding up." 

In the healthcare sector, Johnson & Johnson shares rose 0.9% after it reported earnings.

Meanwhile, United Airlines shares finished up 2% while American Airlines stock rallied 8% after Reuters, citing two unnamed sources, reported that United CEO Scott Kirby had pitched a potential merger with American Airlines to Trump in late February, raising the prospect of a deal that could reshape the industry.

Shares of Globalstar jumped 9.6% after Amazon.com agreed to buy the satellite company.

On US exchanges, 17.96 billion shares changed hands compared with the 19.10 billion moving average for the last 20 sessions. 

Advancing issues outnumbered decliners by a 2.62-to-1 ratio on the NYSE where there were 363 new highs and 49 new lows. On the Nasdaq, 3,345 stocks rose and 1,478 fell as advancing issues outnumbered decliners by a 2.26-to-1 ratio. The S&P 500 posted 20 new 52-week highs and one new low.

(Reporting by Sinéad Carew in New York, Niket Nishant and Avinash P in Bengaluru; Editing by Rashmi Aich, Shinjini Ganguli, and Shilpi Majumdar)