Dow notches record closing high, small caps surge on rate cut bets
June retail sales stronger than expected
BofA profit beats expectations
UnitedHealth rises after Q2 profit beats estimates
Russell 2000 touches multi-year high
Updates to market close
By Stephen Culp
NEW YORK, July 16 (Reuters) - The Dow Jones Industrial Average reached an all-time closing high on Tuesday after U.S. retail sales data supported the narrative that the Federal Reserve is approaching its easing cycle, reining in inflation while avoiding a recession.
The S&P 500 also rose, but weakermegacap growth stocks, led by Nvidia Corp NVDA.O and Microsoft Corp MSFT.O, capped the tech-heavy Nasdaq's gains.
Economically sensitive small caps extended their rally. The Russell 2000 .RUT scored a fifth straight day of gains greater than 1%, its longest winning streak since April 2000.
Dow transportation stocks .DJT also outperformedthe broader indexes as investors increasingly focused on undervalued areas of the market.
Value stocks .IVX, which have underperformed their growth peers .IGX and the broader S&P 500 so far this year, ended sharply higher.
"This rotation underscores the likelihood of interest rate cuts as early as September," said Greg Bassuk, CEO at AXS Investments in New York. "Small cap companies are among the best-positioned to benefit from rate cuts, and today we're seeing this trifecta of strong earnings, a resilient economy and high confidence of a rate cut in September."
Economic data on Tuesday included stronger-than-expected retail sales reported by theCommerce Department. This providedreassurance that consumers, responsible for about 70% of U.S. gross domestic product, have stayed resilient despiterestrictive monetary policy, and easedfears that high interest ratescould tip the economy into recession.
"As you look at the economic data, it's slowing down but not at a concerning pace," said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management in Minneapolis. "The Fed is seeing what it wants to see - it's that sweet spot of the economy slowing down but not too much and not too fast."
"This small cap rally seems predicated on the Fed cutting rates at the September meeting, where the futures markets are setting up a 100% probability," Hainlin added.
Second-quarter earnings season is ramping up.
UnitedHealth Group UNH.N jumped after reporting consensus-topping profit, lifting the blue-chip Dow .DJI and the S&P 500 Health Care index .SPXHC to all-time highs.
Bank of America's BAC.N second-quarter profit beat expectations, and underwriting fees rose as capital markets resurged. The second-largest U.S. bank also provided upbeat net interest income guidance, sending its shares higher.
Morgan Stanley MS.N rose evenafter the investment bankposted disappointing wealth management revenue.
Charles Schwab SCHW.N slid after reporting a dip in interest income.
According to preliminary data, the S&P 500 .SPX gained 35.98 points, or 0.64%, to end at 5,667.20 points, while the Nasdaq Composite .IXIC gained 38.29 points, or 0.21%, to 18,509.34. The Dow Jones Industrial Average .DJI rose 746.60 points, or 1.86%, to 40,958.32.
Tinder parentMatch MTCH.O jumped on newsthat activist investor Starboard has a stake of over 6.5% in the company.
Interactive Brokers IBKR.O and J.B. Hunt Transport Services JBHT.O were among those due to post earnings shortly.
Growth v Value YTD https://reut.rs/4f8a44E
Reporting by Stephen Culp; Additional reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Richard Chang
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