The Dow Jones Industrial Average surged to a second consecutive record close on Tuesday, with the blue-chip index finishing up 345.54 points, or 0.67%, at 52,016.57. This rally was fueled by growing optimism that former Federal Reserve governor Kevin Warsh is a leading candidate to become the next chair of the central bank, potentially signaling a shift away from aggressive interest rate hikes.
According to multiple reports, Warsh is under serious consideration by the White House to replace current Fed Chair Jerome Powell. Wall Street views Warsh as a more market-friendly figure, and the prospect of a dovish-led Fed boosted equity markets. The record-breaking performance also extended a rally that has defied earlier slowdown expectations.
Meanwhile, a sector rotation saw investors rotate out of technology stocks and into cyclicals. The S&P 500 slipped 0.55% to 7,512.44, while the Nasdaq Composite fell 1.15% to 26,382.81. Tech heavyweights like AMD fell more than 5%, Broadcom and Micron lost over 3%, and Nvidia declined more than 1% as traders took profits.
Falling oil prices further supported economically sensitive sectors. Brent crude futures dropped roughly 5% to below $80 per barrel for the first time since March, after President Trump announced progress on a potential US-Iran agreement that could reopen the Strait of Hormuz and allow Iranian oil exports to resume. Lower energy costs boosted industrial and financials, with Caterpillar up over 2% and JPMorgan Chase gaining more than 3%.
All eyes now turn to the Federal Reserve's policy decision on Wednesday, the first under new Chair Kevin Warsh. Markets expect interest rates to stay between 3.50% and 3.75%, but commentary on inflation and the economic outlook will be closely parsed. The recent oil price decline has eased some inflation worries, though traders still see a 42% probability of a quarter-point rate increase by year-end, according to the CME FedWatch tool.
