The benchmark US 10-year yield fell below the psychologically important 5% level as Brent crude futures dipped below $100 a barrel to their lowest level since September 9.
While Washington and Tehran exchanged threats through the weekend, US President Donald Trump said he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to attend the UN General Assembly in New York this week.
The S&P 500 jumped 1.44% to 7,760.29 points, and it was less than 1% below its August 13 record-high close.
The Nasdaq gained 2.13% to 27,086.06 points, while the Dow Jones Industrial Average was up 0.61% at 51,996.40 points.
The S&P 500 last Friday traded at just under 19 times expected earnings, its lowest valuation since 2023, according to LSEG data. AI-related heavyweights are responsible for much of the recent increase in earnings expectations.
Investors remained wary of the interest-rate outlook after the US Federal Reserve last week raised rates for the first time in three years to fight inflation. Traders see a 50% chance of another hike next month, CME's FedWatch showed.
Commentary from at least 10 central bank policymakers is due this week.
US-listed shares of companies exposed to Greenland rose following progress in diplomatic negotiations between the United States and Denmark about the status of Greenland.
Greenland Mines tripled in value, while Greenland Energy more than doubled.
A China-US summit on Thursday could cover topics including potentially extending the trade truce between the two superpowers, the Iran war and regulation of AI. A report said the US proposed to extend the trade truce by six months, while China sought a longer extension.
Bitcoin, a key marker of risk tolerance, rose 6% to a more than seven-month high, lifting Coinbase and Strategy more than 4%.
Paramount Skydance rallied over 4% after a source told Reuters the company had reached a settlement with California and 11 other states suing to block its $110 billion merger with Warner Bros Discovery.
Advancing issues outnumbered falling ones within the S&P 500 by a 1.6-to-one ratio.
The S&P 500 posted five new highs and 27 new lows; the Nasdaq recorded 51 new highs and 102 new lows.
Chip stocks and AI names lead gains
Chip stocks rallied, with Intel and Arm Holdings surging over 12%, and the PHLX semiconductor index jumping 3.7%.
Advanced Micro Devices rose as much as 10% to reach a market capitalization of $1 trillion for the first time. The stock was last up 8%.
Investors pointed to signs that suggest spending on AI is still expanding, despite recent safety warnings from leaders of AI giants a week ago that triggered a global tech selloff.
Meta soared 11% after Wells Fargo hiked its price target on the social media platform following the recent launch of its Muse AI assistant.
Seven of the 11 S&P 500 sector indexes rose, led by communication services, up 4.3%, followed by a 2.0% gain in information technology.
Wall Street rallies on AI strength and lower yields
The S&P 500 and Nasdaq surged toward record highs on Monday, lifted by gains in Advanced Micro Devices and other AI heavyweights, while Treasury yields retreated from recent highs and crude prices tumbled to an 11-day low on speculation about a potential breakthrough in Middle East talks at a UN meeting this week.
The Nasdaq was less than 0.1% below its June 2 record-high close, while the S&P 500 was about 0.5% below its August 13 record-high close.
"We've been kind of programmed to follow the price of oil and the yield on the US 10-year, and if you look at those two things today, they've shifted from being headwinds to tailwinds for this market, at least in the near term," said Art Hogan, chief market strategist at B. Riley Wealth.
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