Dow closes at record on Middle East optimism as Nasdaq drags

The Dow Jones Industrial Average closed at a record high on optimism over Middle East peace talks, while the Nasdaq Composite fell sharply amid concerns over artificial intelligence spending.

The Dow rose 263.18 points, or 0.49%, to 54,349.06. The S&P 500 lost 13.00 points, or 0.17%, to 7,723.52, while the Nasdaq Composite dropped 221.55 points, or 0.83%, to 26,363.44.

Stocks rallied to start the week, with the Dow and S&P 500 closing at records on Tuesday, as oil prices and US Treasury yields dropped on hopes peace talks could lead to a deal — easing inflation pressures and lowering expectations for a Federal Reserve rate hike. The S&P recorded a slight decline on Wednesday.

A proposed deal between Iran and Oman would give Tehran control over ships entering the Gulf through the Strait of Hormuz, a senior Iranian source and two regional officials told Reuters, in one of the biggest concessions yet to Iran.

"It's just a straight rocket shot that we've gone up, we didn't even take a breath," said Kenny Polcari, chief market strategist at Slatestone Wealth in Jupiter, Florida. "It's progress, but the market's just going, we're not going to give it to you this time until we actually see the progress, because how many times have we been jerked around over the last four months?"

SpaceX shares tumble

Elon Musk-led SpaceX saw revenue nearly double and operating losses narrow in its first earnings report since going public, fuelled by its Starlink satellite communications and AI businesses. But shares tumbled 13.6% on concerns over how long it can sustain AI-related spending such as data centres. The post-IPO lock-up period expires from Thursday.

Advanced Micro Devices forecast quarterly revenue above estimates on strong AI demand, yet shares fell 7%. Amgen rose 4.6%, adding more than 100 points to the Dow after second-quarter sales climbed 9%. Eli Lilly jumped 4.9% on a raised full-year forecast, and the S&P 500 healthcare sector closed up 1.3%. Disney gained 3.6% after beating third-quarter profit expectations.

Payrolls growth slows

US private payrolls growth slowed in July, according to the ADP national employment report. The ISM non-manufacturing PMI inched up to 54.1 from 54.0 in June, below the 54.5 estimate but above the 50 growth threshold.

Minneapolis Fed president Neel Kashkari told CNBC he believed now is the time to start slowly raising rates. Expectations for a September hike have dipped to 54.9% from 58.3% a week ago, according to CME FedWatch. Volume on US exchanges was 17.85 billion shares.