Crude Oil Price Decline Boosts Stocks, Eases Inflation Risks

Stocks settled higher on Tuesday after crude oil prices fell more than 3% to a one-week low, easing inflation risks and sending bond yields lower.

The S&P 500 Index closed up by 0.32%, the Dow Jones Industrial Average rose 0.30%, and the Nasdaq 100 Index gained 0.64%. E-mini S&P futures and September E-mini Nasdaq futures also rose, with the latter increasing by 0.63%.

The decline in crude oil prices was triggered by a news report that the US would be returning diplomats to Middle East embassies, easing concerns about an escalation of the Iran war. This development boosted chipmakers and AI-infrastructure stocks, which contributed significantly to the broader market's gains.

However, weakness in energy producers and software stocks limited the upside in the overall market. The US June S&P Composite-20 Home Price Index rose 2.1% year-over-year, exceeding expectations of 1.8%, while new home sales fell 10.5% month-over-month to a six-month low.

Boston Fed President Susan Collins' hawkish comments on Tuesday were negative for stocks and bonds, as she stated that maintaining the current federal funds rate target range would require continued evidence that inflation is coming down. The markets are currently discounting a 39% chance of a 25 basis point rate hike at the next FOMC meeting.