Dow soars 576 points, smallcaps rally as rate-cut bets hold firm

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

However, traders continued to fully price 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.

Those bets helped drive a move away from megacap tech stocks to market sectors that have lagged the benchmark index this year, with the small-cap Russell 2000 index rising 2.4% to its highest level since January 2022, and the S&P 500 Value index gaining 1.1%.

"Small caps have had a significant headwind of higher interest rates for quite some time. That's already in the rearview mirror at this point. Now, the U.S. is about to embark on cutting rates, probably at the (Fed's) September meeting," said Jason Pride, chief of investment strategy and research at Glenmede.

The Russell 2000 was on pace for its fifth straight session of gains of 1% or more - its first such streak in more than four years. Other economically sensitive sectors including industrials, materials and real estate also rose.

The move potentially heralds a sustained rotation away from big tech into the market's underperforming sectors, which many participants have called for even as tech stocks drove Wall Street to record highs this year.

Most megacap stocks slipped, with Nvidia, Microsoft and Meta Platforms falling over 1% each. The S&P Information Technology index led sector declines.

"In the near term, it's a very reasonable expectation that there's going to be volatility between the two sides - the big megacap growth stories and the rest of the market... but we're probably going to move on the average away from the larger-cap companies," Pride said.

Among other corporate earnings, Bank of America jumped 5.3% 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 rose 2.7% following results, while Charles Schwab slumped 8.7% after posting lower net income.

At 12:21 a.m. ET, the Industrial Average was up 575.90 points, or 1.43%, at 40,787.62, the S&P 500 was up 13.79 points, or 0.24%, at 5,645.01, and the Composite was down 64.84 points, or 0.35%, at 18,407.73.

Tinder owner Match jumped 9.1% after a report that activist investor Starboard has a stake of over 6.5% in the company.

Interactive Brokers and J.B. Hunt Transport Services were among those scheduled to report results after markets close.

Advancing issues outnumbered decliners by a 3.80-to-1 ratio on the NYSE, and by a 2.86-to-1 ratio on the Nasdaq.

The S&P index recorded 84 new 52-week highs and three new lows, while the Nasdaq recorded 260 new highs and 24 new lows.