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
Indexes gain: Dow 1.85%, S&P 0.64%, Nasdaq 0.20%
Updates to 16:14 EDT
By Stephen Culp
NEW YORK, July 16 (Reuters) - Wall Street stocks rose and the Dow Jones Industrial Average hit an all-time closing high on Tuesday after U.S. retail sales data supported the view that the Federal Reserve is approaching its easing cycle, reining in inflation while avoiding a recession.
All three major U.S. stock indexes advanced on the day, 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. The index gained3.5%, touching its highest level since January 2022.
Dow transportation stocks .DJT also outperformedthe broader indexes, logging its biggest one-day percentage gain since November and reaching its highest closing level since August 2023 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, jumped1.5%.
"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 consumer spending, which accountsfor about 70% of the U.S. economy, hasstayed 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 6.5% 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 up 5.3%.
Morgan Stanley MS.N rose0.9% evenafter the investment bankposted disappointing wealth management revenue.
Charles Schwab SCHW.N slid 10.2%after reporting a dip in interest income.
Tinder parent Match MTCH.O jumped7.5% on news that activist investor Starboard has a stake of over 6.5% in the company.
The Dow Jones Industrial Average .DJIrose 742.76 points, or 1.85%, to40,954.48, the S&P 500 .SPXgained 35.98 points, or 0.64%, at5,667.2 and the Nasdaq Composite .IXICadded 36.77 points, or 0.2%, at18,509.34.
Of the 11 major sectors in the S&P 500, industrials enjoyed the largest percentage gains, while technology .SPLRCT and communication services .SPLRCL were the only two sectors to end in negative territory.
Advancing issues outnumbered decliners on the NYSE by a 4.58-to-1 ratio; on Nasdaq, a 3.50-to-1 ratio favored advancers.
The S&P 500 posted 94 new 52-week highs and three new lows; the Nasdaq Composite recorded 305 new highs and 29 new lows.
Volume on U.S. exchanges was 11.83 billion shares, compared with the 11.68 billion average for the full session over the last 20 trading days.
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Reporting by Stephen Culp; Additional reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Richard Chang
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