Wall Street stocks rose with the Dow Jones reaching a record high. Strong retail sales and hopes of Federal Reserve rate cuts fuel market optimism.
Bollywood Fever: Wall Street stocks rose on Tuesday, with the Dow Jones Industrial Average hitting an all-time closing high, buoyed by robust U.S. retail sales data. This development reinforced the belief that the Federal Reserve is nearing the end of its tightening cycle, successfully controlling inflation without triggering a recession.
All three major U.S. stock indexes advanced, although the tech-heavy Nasdaq’s gains were limited by weaker performances from megacap growth stocks such as Nvidia Corp and Microsoft Corp. In contrast, economically sensitive small caps extended their rally, with the Russell 2000 index scoring its fifth consecutive day of gains greater than 1%, the longest streak since April 2000, and climbing 3.5% to its highest level since January 2022.
Dow transportation stocks also outperformed broader indexes, recording their largest one-day percentage gain since November and reaching their highest closing level since August 2023. Investors increasingly focused on undervalued market areas, resulting in a 1.5% jump for value stocks, which had lagged behind their growth peers and the broader S&P 500 this year.
“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.”
The Commerce Department’s report of stronger-than-expected retail sales provided reassurance that consumer spending, which constitutes about 70% of the U.S. economy, remains resilient despite restrictive monetary policy. This eased fears that high interest rates could tip the economy into a 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.
Earnings Highlights
The second-quarter earnings season is in full swing, with several major companies reporting strong results. UnitedHealth Group’s shares surged 6.5% after the company reported profit that exceeded consensus estimates, lifting both the Dow and the S&P 500 Health Care index to all-time highs.
Bank of America also reported better-than-expected second-quarter profit and saw a rise in underwriting fees as capital markets resurged. The second-largest U.S. bank provided an upbeat net interest income outlook, sending its shares up 5.3%. Morgan Stanley rose 0.9% despite posting disappointing wealth management revenue, while Charles Schwab slid 10.2% after reporting a dip in interest income.
Tinder parent Match Group saw its shares jump 7.5% following news that activist investor Starboard had acquired a stake of over 6.5% in the company.
Market Performance
The Dow Jones Industrial Average rose 742.76 points, or 1.85%, to close at 40,954.48. The S&P 500 gained 35.98 points, or 0.64%, to finish at 5,667.2, and the Nasdaq Composite added 36.77 points, or 0.2%, to end at 18,509.34. Of the 11 major sectors in the S&P 500, industrials enjoyed the largest percentage gains, while technology and communication services were the only sectors to close in negative territory.
Advancing issues outnumbered decliners on the NYSE by a 4.58-to-1 ratio, and on Nasdaq, a 3.50-to-1 ratio favored advancers. The S&P 500 posted 94 new 52-week highs and three new lows, while 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.
As investors continue to monitor economic data and corporate earnings, the outlook for the remainder of the year remains cautiously optimistic, with a potential interest rate cut in September providing further support for the market’s upward trajectory.
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