The Dow Jones Industrial Average (^DJI) surged more than 700 points on Tuesday to secure another all-time closing high. The benchmark S&P 500 (^GSPC) also notched another record amid growing conviction an interest rate cut is near.

Positive earnings across multiple sectors, along with a surprise retail sales report, helped fuel the rally.

The blue-chip index rose more than 1.8%, thanks in part to positive earnings from UnitedHealth (UNH), which saw shares rise about 5%.

The S&P 500 finished the day up about 0.6% while the tech-heavy Nasdaq Composite (^IXIC) moved up 0.2%.

Small caps are having their best five-day pop compared to the S&P 500 (^GSPC) ever, according to Bespoke Investment Group.

The Russell 2000 (^RUT) is up more than 11% in the past five trading days, including a more than 3% bounce on Tuesday alone. Meanwhile, in that period, the S&P 500 is up just 1.5%. That means the small-cap index has outperformed the benchmark index by nearly 10 percentage points, the highest five-day outperformance on record, per Bespoke.

And it's not just small caps, either. The equal-weight S&P 500 (^SPXEW), which ranks all stocks in the index equally and isn't overly influenced by the size of the stocks moving higher or lower, has outperformed the traditional market cap-weighted S&P 500 over the past five days.

The move comes as markets are aggressively pricing in Federal Reserve interest cuts. As of Tuesday morning, markets were pricing in a 100% chance of an interest rate cut in September, per the CME FedWatch Tool, up from a 70% chance a month ago. n

The increased confidence comes after a better-than-expected June inflation reading combined with signs of further cooling in the labor market. In sum, economists and investors alike have taken the data to mean the Fed will begin cutting interest rates soon as inflation falls closer to the Fed's 2% target.

And for now, that's led the big broadening to hit markets in full force.

Investors are about to find out how homebuilders have weathered high mortgage rates in their second quarter earnings scorecards — but it may not actually matter much for the stocks' trajectory.

The reporting period, which kicks off with Green Brick Partners, Inc. (GRBK), the third-largest homebuilder in Dallas-Fort Worth on July 31, will likely include "some softness to new orders," Alex Rygiel, associate director of research at B. Riley Securities, wrote in a note to clients Tuesday. It's also likely that the builders offered more incentives to buyers in Q2 than in the previous quarter, causing a profit margin headwind.

What's ahead matters more than the quarterly print, though. The good news is that there have been recent signs that inflation is abating, which in investors' eyes has increased the likelihood that the Federal Reserve will reduce interest rates sooner rather than later.

"Though we expect management commentary for full year 2024 may be somewhat cautious if rates don't improve, we suspect the intermediate/longer-term message is likely to be more upbeat on the prospects for lower rates,” Rygiel said. "Bottom line, we view 2Q results as less important than the broader markets view on Fed rate actions, that we believe is increasingly more favorable for a 2H24 rate cut.”

Gold prices hit a record high on Tuesday as rate cut confidence deepened, with prices trading around $2,470 an ounce.

Gold has surged 20% since the start of the year, seemingly unaffected by the high interest rate environment. Large purchases from central banks, coupled with increased demand for the precious metal in China, has helped buoy its price.

Some strategists have suggested a Trump presidency could also balloon the demand for gold.

Citigroup has predicted the metal could see prices between $2,700 and $3,000 an ounce in 2025.

The Securities and Exchange Commission (SEC) has told asset managers the first US exchange-traded spot ether ETFs could launch next week, according to the Wall Street Journal.

Ethereum prices climbed 2% on Tuesday to trade around $3,456 a coin while other cryptos like bitcoin also moved higher. Bitcoin prices jumped 2% Tuesday to trade around $64,565 a coin. Ethereum is the second-largest cryptocurrency behind bitcoin.

According to the Journal, the SEC is waiting on asset managers to submit a final round of filings this week. Once that happens, the agency is expected to declare fund-registration statements as soon as Monday.

The SEC approved the ether funds in May following the January debut of nine US exchange-traded spot bitcoin ETFs. The Journal said at least 10 asset managers, including BlackRock and Fidelity, have applied to launch the first batch.

The Nasdaq Composite (^IXIC) turned lower in afternoon trading on Tuesday with the tech-heavy index falling about 0.2%.

The Dow (^DJI) and S&P 500 (^GSPC), however, held on to gains as the Dow surged more than 1.4% to trade around 40,788. The index was boosted by shares of UnitedHealth (UNH), which climbed about 5% after the insurance company posted earnings that beat expectations.

Crude oil (CL=F) dropped more than 1% to trade just below $81 a barrel as traders assessed disappointing growth data out of China.

Yields also declined, with the 10-year Treasury yield (^TNX) falling around 4 basis points to trade near 4.2%.

Investors are confident the Federal Reserve will be lowering interest rates by the end of its September meeting.

As of Tuesday morning, markets were pricing in a 100% chance of an interest rate cut in September, per the CME FedWatch Tool, up from a 70% chance a month ago.

The increased confidence comes after a better-than-expected June inflation reading combined with signs of further cooling in the labor market. In sum, economists and investors alike have taken the data to mean the Fed will begin cutting interest rates soon as inflation falls closer to the Fed's 2% target.

"Recent data have showed a continued softening in the labor market and substantial cooling in inflation pressures, importantly in the all important shelter category," Deutsche Bank chief US economist Matthew Luzzetti wrote in a July 12 research note, which included a projection for a September rate cut. "These developments should materially impact the outlook for monetary policy."

Fed Chair Jerome Powell said on Monday that recent data has added "somewhat" to the central bank's confidence that inflation is falling to its target. However, the Fed chair declined to specify what exactly that means for when the Fed will cut.

"I’m not going to be sending signals on any particular meeting," he said. "We are going to make these decisions meeting by meeting and the evolving data and the balance of risks." Powell said during an interview at the Economic Club of Washington.

Regardless of when exactly the cut comes, investors now feel confident that the path forward for interest rates is lower. The further confidence that those cuts are coming soon has been driving a broad stock market rally.

The most-loved areas of the market of the past year have underperformed as investors rotate into sectors outside of tech.

The Roundhill Magnificent Seven ETF, which tracks the group of large tech stocks that led the 2023 stock market rally, is down more than 3% in the past five days. Meanwhile, Real Estate (XLRE) and Industrials (XLI), both interest rate-sensitive sectors, have been the market's biggest winners over the same time period, rising about 5%.

The small-cap Russell 2000 (RUT) index is up more t 10% and finally breached its 2022 high for the first time during the current bull market.

"If this trade continues, if the prospect for a rate cut is still in play for this fall, then we could finally see the bull wake up, and that's good news for all investors," Ritholtz Wealth Management chief market strategist Callie Cox told Yahoo Finance on Monday.

Homebuilders are feeling worse about the housing market as persistently high mortgage rates curtail sales.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell one point to 42 in July, marking the lowest level since December. July's reading was lower than economists’ estimates of 43, per Bloomberg data.

Any number under 50 indicates that more builders view conditions as poor versus good.

A high cost of borrowing has kept potential buyers and sellers on the sidelines. New home sales hit a six-month low in May, according to the latest data available from the Census Bureau.

Mortgage rates have hovered around 7% this year. The national average on the 30-year, fixed-rate mortgage fell to 6.89% last week from 6.95% a week prior, Freddie Mac reported.

There are signs, though, that inflation is easing, making it more likely the Federal Reserve will cut interest rates sooner rather than later. Markets are widely betting on a September rate cut.

“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers,” NAHB chief Economist Robert Dietz said in a press release. “And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction.”

The stock market's record-setting rally comes alongside hopes the Federal Reserve will begin to cut interest rates in September.

Traders are pricing in a 100% chance that rate cuts come that month, according to CME FedWatch data.

But the consumer could derail that plan, one strategist warned.

"The consumer is so incredibly important — 70% of our economy," Matt Maley, managing director at Miller Tabak, told Yahoo Finance on Tuesday. But he said that "things have been trending in the wrong direction," citing high credit card debt with delinquency rates starting to pick up as well.

"It's one thing for interest rates to go down because inflation is coming down but it's a whole other thing if it's starting to show we're heading towards a recession or even a meaningful slowdown in economic growth," he said.

Retail sales in June surprised to the upside, with sales coming in flat for the month, defying Wall Street's prediction of a decline. But the future of the rally will not just depend on economic data. It will also depend on earnings, with sales and profitability top of mind.

Maley said it's "incredibly important" S&P 500 companies not only beat earnings expectations but also raise guidance "because we're at a stock market trading at 22x earnings."

In other words, a pullback might be on the horizon if guidance disappoints.

US stocks moved higher on Tuesday as investors assessed fresh big bank earnings and a surprise retail sales report — all while investors appear more and more confident that an interest rate cut is near.

The Dow Jones Industrial Average (^DJI) rose roughly 0.5% after the blue-chip index topped 40,000 to notch an all-time closing high. The S&P 500 (^GSPC) and tech-heavy Nasdaq Composite (^IXIC) were each up more than 0.3% on the heels of their own daily wins.

Retail sales were flat in June, defying Wall Street's prediction of a decline amid signs of slowing in the US economy.

Economists had expected a 0.3% decline in spending, according to Bloomberg data. Meanwhile, retail sales in May were revised higher to an increase of 0.3%, from a prior reading of 0.1%, according to Census Bureau data.

June sales, excluding auto and gas, grew by 0.8%, above consensus estimates for a 0.2% increase. The control group in Tuesday's release — which excludes several volatile categories and factors into GDP for the quarter — rose 0.9% in June, above estimates for a 0.2% gain.

"Although retail sales were unchanged in June, the strong 0.9% [month-over-month] rise in control group sales should ease concerns about the plight of the consumer in the wake of the renewed slump in sentiment," Capital Economics chief North America economist Paul Ashworth wrote in a note to clients. "Admittedly, both second-quarter consumption and GDP growth still appear to have been no better than 2% annualised, but the strong gain in June does set up for a better third quarter performance."

Expectations on Netflix (NFLX) earnings later this week are on the high side, to say the very least. It makes sense as the company's business has clearly kicked into a new gear in the past two quarters.

Even still, you have to wonder if expectations are too high and, no matter what Netflix reports on Thursday, it will be seen as a letdown.

An example of what I am talking about is Jefferies analyst James Heaney, with this line in his earnings preview report this morning: