Dow rally drives Wall St higher as rate-cut hopes stay strong

By Lisa Pauline Mattackal and Ankika Biswas

(Reuters) - The Dow led Wall Street's main indexes higher on Tuesday, boosted by UnitedHealth's strong results and as unexpectedly robust retail sales data signaled a still-resilient U.S. economy, but did little to dampen rate-cut bets.

UnitedHealth Group jumped 4.3% following a second-quarter profit beat, lifting the blue-chip Dow and the S&P 500 Health Care index to all-time highs.

Among other corporate earnings, Bank of America jumped 3.6% after an upbeat net interest-income forecast and better-than-expected second-quarter profit, steering the S&P 500 Financials index to a record high.

Morgan Stanley fell 1% after its wealth management revenue missed estimates, while Charles Schwab slumped 7% after posting lower net income.

A Commerce Department report showed retail sales were unchanged in June, when they were expected to fall 0.3%, while retail sales minus automobiles jumped 0.4%, versus forecasts of a flat reading.

However, traders are fully pricing in a rate reduction by September, with the odds of a 25-basis-point cut standing at 93%, according to the CME's FedWatch tool.

"Investors, at first, were likely disappointed because it might not assist in helping the Fed make a decision about cutting rates. But at the same time, it's offering comfort that the U.S. economy is not headed toward recession anytime soon," said Sam Stovall, chief investment strategist, CFRA Research.

"The momentum trade will likely continue, especially with a broadening into the smaller cap companies within the U.S. investor marketplace."

The small-cap Russell 2000 index jumped 2% to its highest level since January 2022, as investors continue to move away from heavily weighted tech stocks, which have driven much of Wall Street's rally this year.

Strong bets on a rate cut by the U.S. Federal Reserve in September and a second term for presidential candidate Donald Trump following an assassination attempt had prompted an upbeat start to the week for Wall Street.

However, Trump-linked stocks retreated after Monday's rally, with Trump Media & Technology Group and software firm Phunware losing between 3% and 8%.

Markets read it as a dovish signal when Fed Chairman Jerome Powell said on Monday that the latest economic data "add(s) somewhat to confidence" that inflation was returning to the central bank's 2% target.

At 9:56 a.m. ET, the Dow Jones Industrial Average was up 388.12 points, or 0.97%, at 40,599.84, the S&P 500 was up 20.10 points, or 0.36%, at 5,651.32, and the Nasdaq Composite was up 33.73 points, or 0.18%, at 18,506.29.

Among top megacap movers, Nvidia was down 1.6%, while Amazon.com rose 1%.

The S&P 500 Communication Services index jumped 1%, led by an 8.3% rise in Tinder-owner Match, after a report that activist investor Starboard has a stake of over 6.5% in the company and was pushing for a possible sale if a turnaround wasn't successful.

Advancing issues outnumbered decliners by a 3.67-to-1 ratio on the NYSE, and by a 3.10-to-1 ratio on the Nasdaq.

The S&P index recorded 53 new 52-week highs and three new lows, while the Nasdaq recorded 200 new highs and 16 new lows.

(Reporting by Lisa Mattackal in Bengaluru; Editing by Pooja Desai)