The Dow Jones Industrial Average surged more than 900 points for its best day in nearly two months. The S&P 500 jumped nearly 2% to a new all-time high in what became one of its biggest single-day advances of the year.
"It's not just one specific news event that's causing the rally. You're getting a succession of events," said Paul Hickey, co-founder at Bespoke Investment Group. "Multiple positive catalysts tend to have longer legs."
Here are five reasons why the market took off:
1. Bessent's Iran comments to CNBC
Treasury Secretary Scott Bessent told CNBC's "Squawk Box" that the U.S. and Iran could reach a deal either Tuesday or Wednesday that would reopen the Strait of Hormuz.
"We are in talks with the Iranians," Bessent said in a Tuesday morning interview with CNBC. "There is a chance we may have a deal today or tomorrow to open the strait and move towards a more normalized position in this conflict."
Dow futures surged following his commentary on Hormuz, a key passageway for the global crude trade that's become a focal point of the economic impact tied to the monthslong conflict. Oil futures tumbled, further lending support to an equity rally and sending bond yields — another sticking point for investors — tumbling.
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Jeff Krumpelman, chief investment strategist at Mariner, said that the market is "assuming that we're going to be able to handle the closing of the Strait of Hormuz just fine" and that oil prices are going to stabilize longer term. He cautioned, however, that it could still be a headwind if the conflict continues to be extended and oil prices reaches $150 per barrel.
Iran headlines are likely going to keep driving the market, according to Larry Tentarelli, chief technical strategist at the Blue Chip Daily Trend Report. While Tuesday's developments led to a market pop, he said investors should still be ready for big swings in either direction if tensions once again flare up between the two countries.
"You've got decent headlines for Iran," Tentarelli said. "But if for some reason the headlines go the other way, then we just need to keep in the back of our mind to expect some volatility."
2. Earnings are booming
A strong earnings backdrop was already underpinning the bull case for many investors this year, but the second quarter results have been positively explosive.
The S&P 500 is on track to deliver second quarter earnings growth of 27% on a yearly basis, excluding mark-ups at Google-parent Alphabet and Amazon, according to Bank of America Securities. That's a 4% beat versus the consensus from the start of the earnings season.
"War continues to get shrugged off," said Jay Woods, chief market strategist at Freedom Capital Markets. "Earnings are finally winning."
With the inclusion of Alphabet and Amazon, the broader index is on pace to deliver even more incredible earnings growth, of 45% year over year, Bank of America noted.
"Right now, I think you're sitting there asking me, 'Oh, what happens if tech misses?' And I'm saying, 'Well, most are in good shape,'" Krumpelman told CNBC.
"Have you checked out the earnings growth rates in healthcare, industrials, financials, consumer [staples], and these other areas? It's strong double digit," he continued. "That will support further advancement in the market."
To be sure, S&P 500 companies haven't been rewarded as much for their beats this earnings season than in the past, with the average stock in the index slipping 0.2% in the day after reporting, according to data from Charles Schwab. But that could be starting to reverse, with Caterpillar's and Palantir's post-earnings ascents on Tuesday only adding to confidence.
3. Tech is rallying together
A divergence within the high-flying technology sector took center stage in recent months with chip stocks for a time seen as the big A.I. winners, while those needing to pay for those semiconductors — big megacap tech like Microsoft and software companies — seen as the losers.
That then reversed in July as chip stocks imploded with the group seen as too overheated by some.
But so far in August, especially on Tuesday, investors were buying a broad array tech stocks on optimism they all can be winners from A.I.
The iShares Semiconductor ETF (SOXX) jumped more than 6% on Tuesday, while the iShares Expanded Tech-Software Sector ETF (IGV) added nearly 5%. Both groups provided upward momentum to the broad sector, with the tech-heavy Nasdaq Composite rising more than 2.5%.
Investors had largely looked beyond the group of marque technology stocks known as the Magnificent Seven that had been responsible for driving the market higher over recent years.
But even these megacap stocks joined in on Tuesday's rally, with the Roundhill Magnificent Seven ETF (MAGS) going up almost 1% in the session. Still, the fund is up only around 5% in 2026 compared with the S&P 500's 13% advance, underscoring its underperformance as of late.
Part of the rebound in technology stocks could also stem from the group's recent challenges. The more-concentrated Nasdaq 100, which rose by over 3% on Tuesday, had dropped into a shallow correction last week.
4. Index breakout
The S&P 500 is also tearing through a key resistance level that brought on more buying, with technical analysts previously watching carefully to see if the broader index could close and stay above the 7,620 level which represents the June high.
On Tuesday, the broad market index opened above that level and never looked back, closing above 7,700 for the first time ever.
The recent streak of buying only adds to conviction that the rally has legs. Historically speaking, four back-to-back days of greater than 1% gains in the Nasdaq Composite is a precedent for further gains, according to Bespoke's Hickey.
"The fact that you get such consistent buying four days in a row suggests that it's real buying," Hickey said.
For Krumpelman, he predicts the S&P 500 can reach as high as 8,100 by year-end. By mid-2027, he thinks the index will be at 8,400.
"If there's no wall of worry, all the money's in. Everyone's invested," he said. "I'm going to take my cues from the trend in earnings, inflation, employment, real GDP growth, credit spreads, and as long as they're trending in the right direction as they are now, then my targets will hold."
5. Aschenbrenner's effect
Investors see another reason why the market has been poised for a bounce like Tuesday's: The near-collapse of Leopold Aschenbrenner's Situational Awareness fund.
Situational Awareness peaked in July at around $45 billion, aided by surging memory names and other momentum plays. But after the fund came under pressure, Aschenbrenner had to sell his leveraged stock bets to Citadel last week.
More broadly, momentum investors appeared washed out into the end of July, which prompted technical selling. With the slate cleaned on these higher-volatility trades and the Nasdaq 100 well off highs, traders were ready to buy entering the new trading month, which began with Monday's opening bell.
Call it the "Leopold low," said Jeff Kilburg, investing chief at KKM Financial.
"The algorithmic selling the last two weeks before Aschenbrenner's forced sale in these momentum names was like something I've never seen before," Kilburg said. "We finally got rid of the bullying shorts in the momentum names that pushed the Nasdaq 100 into a correction. And once we got rid of this Wall Street noise, the focus turned back to earnings growth and we are seeing the best growth we've seen in decades."
After Tuesday's rally, the S&P 500 is now up 3.3% for August. The Nasdaq Composite is up nearly 5% in two days alone. %!s()