By Stephen Culp
NEW YORK (Reuters) -Wall Street closed higher on Monday, building on Friday's rally as increasing expectations of a second Donald Trump presidency in the wake of a failed assassination attempt raised hopes of a looser regulatory environment.
The growing probability that the U.S. Federal Reserve will begin cutting its key interest rate as soon as September also helped feed risk appetite.
While all three major U.S. stock indexes ended well below session highs, the Dow Jones Industrial Average notched an all-time closing high.
Economically sensitive small caps and transportation stocks handily outperformed the broader market.
An assassination attempt in Pennsylvania on Saturday of Trump, the presumptive Republican nominee for president, appeared to improve his chances for election. A Trump presidency would presumably result in a more hawkish trade policy, an extension of tax cuts and deregulation in a host of areas ranging from climate change to cryptocurrencies.
Online betting site PredictIt showed bets of an election win at 67 cents for Trump, up from Friday's 60 cents, with a victory for Democratic U.S. President Joe Biden at 26 cents.
"The headline event - the attempted assassination of Donald Trump - did not result in a bottom line event," said Sam Stovall, chief investment strategist of CFRA Research in New York. "There's no change to GDP forecasts, no change to expectations that the Fed will start to cut rates in September, corporate profits are coming in ahead of expectations."
"So the momentum in the market remains based on investor optimism," Stovall added.
Sentiment was also buoyed by optimism that the U.S. Federal Reserve will enter its expected interest rate cutting phase as early as September, with as many as three total cuts by the end of the year.
"A September (rate) cut has been all but cemented," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "We're sitting almost exactly where we were seven months ago, which is the promise of Fed rate cuts without a recession. It’s still very much predicated to the Fed coming to the party."
Speaking before the Economic Club of Washington, Fed Chair Jerome Powell reiterated on Monday his belief that the U.S. economy can avoid recession, and recent data readings show progress in bringing inflation down to the central bank's 2% goal.
The Dow Jones Industrial Average rose 210.82 points, or 0.53%, to 40,211.72, the S&P 500 gained 15.87 points, or 0.28%, to 5,631.22 and the Nasdaq Composite added 74.12 points, or 0.40%, to 18,472.57.
Among the 11 major sectors of the S&P 500, energy shares enjoyed the biggest percentage gain, while utilities were laggards.
Goldman Sachs' second-quarter profit more than doubled, beating analyst estimates on solid debt underwriting and fixed-income trading. The broker's shares advanced 2.6%.
Shares of Macy's Inc dropped 11.7% after the department store scrapped buyout talks with Arkhouse Management and Brigade Capital.
The prospect of a second Trump presidency sent shares of Trump Media & Technology Group soaring 31.4%.
Crypto stocks also fared well, with Coinbase Global, Marathon Digital Holdings and Riot Platforms up between 11.4% and 18.3%.
Other stocks that are expected to benefit from Trump's possible second term climbed, with gunmaker Smith & Wesson and prison operator GEO Group gaining 11.4% and 9.3%, respectively.
On the downside, solar energy firms slid as the prospect of Trump's election dimmed expectations for renewable energy U.S. subsidies.
Shares of Sunrun and SolarEdge Technologies tumbled 9.0% and 15.4%, respectively.
U.S.-listed shares of Chinese companies also declined on fears of tightened trade restrictions under another Trump administration.
IShares China Largecap ETF fell 2.2%.
Advancing issues outnumbered declining ones on the NYSE by a 1.35-to-1 ratio; on Nasdaq, a 1.50-to-1 ratio favored advancers.
The S&P 500 posted 65 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 203 new highs and 33 new lows.
Volume on U.S. exchanges was 11.07 billion shares, compared with the 11.59 billion average for the full session over the last 20 trading days.
(Reporting by Stephen Culp in New YorkAdditional reporting by Lisa Mattackal and Ankika Biswas in BengaluruEditing by Shinjini Ganguli and Matthew Lewis)