Wall Street stocks rose and the Dow Jones Industrial Average hit an all-time closing high on Tuesday after US retail sales data supported the view that the Federal Reserve is approaching its easing cycle, reining in inflation while avoiding a recession.

All three major US stock indexes advanced on the day, but weaker megacap growth stocks, led by Nvidia and Microsoft, capped the tech-heavy Nasdaq’s gains.

Economically sensitive small caps extended their rally. The Russell 2000 scored a fifth straight day of gains greater than 1%, its longest winning streak since April 2000. The index gained 3.5%, touching its highest level since January 2022.

Dow transportation stocks also outperformed the broader indexes, logging its biggest one-day percentage gain since November and reaching its highest closing level since August 2023 as investors increasingly focused on undervalued areas of the market.

Value stocks, which have underperformed their growth peers and the broader S&P 500 so far this year, jumped 1.5%.

“This rotation underscores the likelihood of interest rate cuts as early as September,” said Greg Bassuk, CEO at AXS Investments in New York. “Small cap companies are among the best-positioned to benefit from rate cuts, and today we’re seeing this trifecta of strong earnings, a resilient economy and high confidence of a rate cut in September.”

Economic data on Tuesday included stronger-than-expected retail sales reported by the Commerce Department. This provided reassurance that consumer spending, which accounts for about 70% of the US economy, has stayed resilient despite restrictive monetary policy, and eased fears that high interest rates could tip the economy into recession.

“As you look at the economic data, it’s slowing down but not at a concerning pace,” said Tom Hainlin, national investment strategist at US Bank Wealth Management in Minneapolis. “The Fed is seeing what it wants to see – it’s that sweet spot of the economy slowing down but not too much and not too fast.”

“This small cap rally seems predicated on the Fed cutting rates at the September meeting, where the futures markets are setting up a 100% probability,” Hainlin added.