Stock market today: Dow surges 742 points and small caps rally as investors bet big on Fed rate cuts

Rising confidence in the Fed's ability to cut rates soon is pushing investors into overlooked corners of the stock market.

• The Dow Jones climbed over 700 basis points on Tuesday.
• Small-caps saw a steeper increase as rate-cut bets helped drive a rotation into other parts of the market. 
• Retail sales also encouraged investors, diminishing fears of a consumer spending pullback.

US equities soared on Tuesday as the bull market swept into broader corners of the market.

While the Dow Jones jumped 1.8% to a new record high, the Russell 2000, an index focused on small-caps, notched an even steeper gain of 3.5%.

The rotation into less loved corners of the equity market highlights a rising appetite for stocks that investors think are set to outperform once the Federal Reseve starts cutting interest rates. Small-caps are often more debt-burdened companies, and the sector has struggled amid higher interest rates.

But with the market growing more confident in the possibility of a rate cut in September, risk-on appetite is surging.

The Russell 2000's performance isn't a one-off feat either: the four past sessions have witnessed the Russell surpass the Nasdaq by close to 11 percentage points. That hasn't happened in 13 years.

Wall Street has grown convinced that the Fed will ease rates this fall, after June delivered a softer-than-expected inflation report.

On Tuesday, June's retail sales came in strong, lowering concern of an imminent consumer pullback. Excluding autos, sales rose 0.4% against estimates of a 0.1% increase

"The economy is in pretty good shape," Comerica Bank chief economist Bill Adams said.

He added: There are signs of softness around the edges where low and moderate income consumers are pulling back, like the weakness of food service and drinking place spending in the first half of this year. But openhanded spending by affluent consumers is keeping the economy as a whole moving forward."

At the same time, the second quarter's earnings season is helping maintain market momentum. On Tuesday, estimate-beating reports helped Bank of America and Caterpillar, the industrial equipment firm, gain upside.

Here's where US indexes stood at he 4:00 p.m. closing bell on Tuesday:

• S&P 500: 5,667.20, up 0.64%
• Dow Jones Industrial Average: 40,954.48, up 1.85% (+742.76 points)
• Nasdaq composite: 18,509.34, up 0.2%

Here's what else happened today:

• This small-cap index will rally 40% as S&P 500 starts to lag, Fundstrat's Tom Lee said.
• One of the stock market's biggest worries is vanishing as the rally broadens out.
• The upcoming launch of spot ether ETFs will boost the token above bitcoin, research firm says.
• A bond market recession signal is flashing red for the first time since 1999.
• Swing state housing costs have doubled since the last election, Redfin reports.

In commodities, bonds, and crypto:

• West Texas Intermediate crude oil grew 0.42% to $80.83 a barrel. Brent crude, the international benchmark, dropped 1.23% to $83.83 a barrel.
• Gold climbed 1.82% to $2,466.5 per ounce.
• The 10-year Treasury yield fell six basis points to 4.164%.
• Bitcoin stayed essentially flat at $64,799.