S&P 500 and Nasdaq hit record highs on AI momentum, while Dow rises slightly after weak retail sales

Nvidia (NVDA.O) surpassed Microsoft (MSFT.O) to become the world's most valuable company, ending the day with a market capitalization of $3.22 billion.

The S&P 500 and Nasdaq closed at record highs on Tuesday, boosted by Nvidia's continued rise to new peaks, while the Dow finished barely higher on a quiet pre-holiday day following weaker-than-expected U.S. retail sales data.

Other semiconductor stocks also extended their recent rallies, propelling the Philadelphia Semiconductor SE Index (.SOX) to an all-time high.

Qualcomm (QCOM.O), Arm Holdings and Micron (MU.O) advanced between 2.1% and 8.7%, with Micron reaching an all-time high.

"It really is the AI story," said Ty Draper, a financial advisor with Beacon Capital Management in Franklin, Tenn.

The Nasdaq posted its seventh consecutive record close as gains in many semiconductor stocks offset losses in Alphabet (GOOGL.O), Amazon (AMZN.O) and Meta Platforms (META.O).

Retail sales rose 0.1% in May, versus the 0.3% growth forecast by economists surveyed, while another report showed surprisingly strong industrial and manufacturing output in May.

Following the news, markets slightly increased bets on two interest rate cuts by the Federal Reserve this year, LSEG's FedWatch showed, despite the most recent projections by U.S. central bankers that only one reduction is expected.

Shares of education technology provider Chegg (CHGG.N) rose 3,45% after announcing job cuts in a restructuring.

Financials (.SPSY) and technology (.SPLRCT) led the advancers among the 11 S&P 500 sectors, up 0.64% and 0.61%, respectively, while communication services (.SPLRCL) and consumer discretionary were the biggest losers.

Comments from Fed officials on Tuesday offered nothing compelling to trade. New York Fed President John Williams said rates will come down gradually, while Thomas Barkin of the Richmond Fed said he needed more months of economic data before supporting a rate cut.

Some market observers noted that nothing surprising emerged. "That's why the markets were flat today," said Jim Awad, senior managing director at Clearstead Advisors LLC in New York.

U.S. markets will be closed Wednesday for the Juneteenth holiday.

Hopes for multiple rate cuts this year, excitement over AI-related companies and solid earnings from other tech firms have driven stocks in recent months, with gains concentrated in a few heavyweight stocks.

Citigroup raised the year-end target for the S&P 500 (.SPX) to 5,600 points from 5,100.

The Dow Jones Industrial Average (.DJI) rose 56.76 points, or 0.15%, to 38,834.86. The S&P 500 (.SPX) rose 13.80 points, or 0.25%, to 5,487.03 and the Nasdaq Composite (.IXIC) gained 5.21 points, or 0.03%, to 17,862.23.

Homebuilder Lennar (LEN.N) fell 4.98% after forecasting lower-than-expected third-quarter housing deliveries.

Bullish issues outnumbered bearish issues by a ratio of 1.79 to 1 on the NYSE, which had 259 new highs and 93 new lows.

Volume on U.S. exchanges was 10.96 billion shares, compared to the full-session average of 11.79 billion for the last 20 trading days.

Collaboration: Grupo Auge | Reuters (International).