Dow rallies 400 points for a second day, S&P 500 closes at another record high

Stocks rose Wednesday, adding to their recent momentum as expectations for lower U.S. Federal Reserve rates continue driving the major indexes to all-time highs.

The Dow Jones Industrial Average gained 463.66 points, or 1.04%, at 44,922.27. The S&P 500 added 0.32% to finish at 6,466.58, while the Nasdaq Composite settled up 0.14% at 21,713.14. Both indexes closed at record highs for the second straight day.

AMD popped 5.4% to lead gains in tech. Apple also advanced 1.6%. Shares of Paramount Skydance soared 36.7%.

Those moves followed a record-setting session Tuesday sparked by a tamer-than-expected inflation report that gave investors hope of a Fed rate cut in September. Traders are pricing in a near 100% chance of a rate cut at the Fed’s September meeting, per trading data from the CME’s FedWatch Tool. 

Ross Mayfield, investment strategist at Baird, also pointed to a strong second-quarter earnings season so far as another market catalyst. While the pace of earnings reports has lulled these last few days, it ramps back up next week with a slew of big retail names on the docket.

“This has been a really impressive earning season, which showcases kind of a corporate resilience from all the headwinds that we saw across the summer,” he said to CNBC. “You also had just a really nice kind of breadth.”

Investors rotated out of megacap “Magnificent Seven” stocks in favor of their smaller counterparts, with the Russell 2000 gaining 2% on Wednesday. Small-cap stocks are a beneficiary of lower interest rates, since they also lower the cost of capital and possibly boost consumer spending.

Thursday’s producer price index report on wholesale inflation will add another piece of the economic picture. The report comes ahead of the Fed’s Jackson Hole gathering on Aug. 21-23, which could also help shape expectations for the central bank’s next policy move.