AI mania drives Wall Street to higher close ahead of earnings

US stock market: The tech-heavy Nasdaq closed higher on Tuesday, leading gains on Wall Street amid investor excitement about artificial intelligence before earnings reports from mega-cap technology companies Alphabet (GOOGL.O) and Microsoft (MSFT.O) after the bell.

Both Microsoft and Alphabet have launched an array of AI products since OpenAI, backed by Microsoft, released ChatGPT in late 2022. Investors expect the new products will help tech giants offset a slowdown in their cloud businesses.

Shares in the owner of Google and the maker of Windows climbed 0.6 per cent and 1.7 per cent, respectively. "When you have this much enthusiasm for a specific investing theme, you don't need much of a reason for markets to move. It's inertia," said Steve Sosnick, chief strategist at Interactive Brokers.

With the U.S. central bank on track for another 25-basis point interest rate hike on Wednesday, policymakers face a choice over how much weight to put on recent economic data.

"The Federal Reserve meeting tomorrow is reminding the market that it will be the second to last, if not the last, interest rate increase, and that has been a major concern for markets, particularly for tech stocks," said Rishi Sadarangani, chief investment officer at hedge fund R/Evolution Gate.

A survey showed consumer confidence increased to a two-year high in July, amid continued optimism about the labor market despite worries about a recession.

The tech-heavy Nasdaq Composite index (.IXIC) has rallied this year, helped by outsized gains in rate-sensitive megacap growth companies and hopes for an end to the U.S. Federal Reserve's tightening cycle.

Companies outside tech are also performing well as lower valuations attract investors.

The blue-chip Dow (.DJI) inched up for 13th day in a row, even as a 0.87 per cent slide in Boeing (BA.N) capped gains.

RTX (RTX.N) tumbled 10.2 per cent after saying many of its Pratt & Whitney GTF engines that power Airbus A320neo jets will need "accelerated removals and inspections".

The S&P composite 1500 passenger airlines sub index (.SPCOMAIR) dropped 3.45 per cent, bogged down by a 9.7 per cent fall in Alaska Air (ALK.N) after the airline's annual revenue growth outlook missed expectations.

The Dow Jones Industrial Average (.DJI) rose 26.83 points, or 0.08 per cent, to 35,438.07, the S&P 500 (.SPX) gained 12.82 points, or 0.28 per cent, to 4,567.46 and the Nasdaq Composite (.IXIC) added 85.69 points, or 0.61 per cent, to 14,144.56.

Volume on U.S. exchanges was 9.75 billion shares, compared with the 10.32 billion average for the full session over the last 20 trading days.

Most of the 11 major S&P 500 sectors were subdued. But materials stocks gained 1.76 per cent, tracking rising metal prices as investors cheered pledges of support from a politburo meeting in China.

General Electric (GE.N) jumped 6.27 per cent after raising its annual adjusted profit forecast, while General Motors (GM.N) slumped 3.51 per cent after it posted a decline in adjusted pre-tax profit and margins in its key North American market from the previous quarter.

3M Co (MMM.N) rose 5.33 per cent as the industrial conglomerate raised its annual adjusted profit forecast.

The S&P 500 earnings are now expected to decline 7.7 per cent for the second quarter, as per Refinitiv data.

Advancing issues outnumbered declining ones on the NYSE by a 1.19-to-1 ratio; on Nasdaq, a 1.21-to-1 ratio favored decliners.

The S&P 500 posted 37 new 52-week highs and no new lows; the Nasdaq Composite recorded 74 new highs and 101 new lows.