*

JPMorgan ( JPM ), Citi, Wells Fargo ( WFC ) drop after results

*

Small-cap stocks surge

*

U.S. producer prices rise marginally in June

*

S&P 500 +1.18%, Nasdaq +1.36%, Dow +1.15%

(Updates at 2:09 pm ET / 1809 GMT)

By Noel Randewich and Medha Singh

July 12 (Reuters) -

Wall Street stocks rallied on Friday, with the S&P 500 and

Dow Jones Industrial Average hitting record highs on optimism

that the Federal Reserve will begin cutting U.S. interest rates

in September, while big lenders fell after reporting mixed

results.

Some of the market's most valuable companies bounced back

after dipping in the previous session, with Apple ( AAPL )

climbing 2% and Nvidia ( NVDA ) adding almost 3%.

JPMorgan Chase's ( JPM ) second-quarter profit was lifted by

rising investment banking fees. However, shares of the world's

largest bank dipped almost 1%, cutting their gain in 2024 to

about 21%.

Wells Fargo ( WFC ) tumbled nearly 6% after the lender

missed estimates for quarterly interest income, while Citigroup ( C/PN )

fell 2% despite reporting a surge in investment banking

revenue.

The S&P 500 banks index lost 1%.

The small-cap Russell 2000 rallied for a third

straight day, jumping 1.4% to its highest since 2022, while the

S&P 400 Mid Cap index firmed 1.4%. The two indexes have

lagged the S&P 500 this year.

"That rotation into small- and mid-caps is still continuing

and that's a positive sign overall," said Ryan Detrick, chief

market strategist at Carson Group.

With the S&P 500 at record highs, investors are betting on

strong profit growth from companies beyond Nvidia ( NVDA ) and

other heavyweights that have benefited from explosive growth in

artificial intelligence computing.

Analysts expect second-quarter earnings for S&P 500 firms to

jump 9.6%, with strong growth from technology companies but

declining earnings in real estate, industrials and materials,

LSEG IBES data showed.

"The thematic appeal of the AI story is still very much

there," said Zachary Hill, head of portfolio management at

Horizon Investments in Charlotte, North Carolina. "We just need

to see an inflection in earnings growth coming from the rest of

the market, and that's something that we're going to be watching

for quite intently over the next couple weeks."

The S&P 500 was up 1.18% at 5,650.38 points.

The Nasdaq gained 1.36% at 18,532.38 points, while the

Dow Jones Industrial Average rose 1.15% to 40,209.36 points.

The most traded stock in the S&P 500 was Tesla,

with $30 billion worth of shares exchanged during the session.

The shares rose 3.65%.

Data showed producer prices were slightly

hotter-than-expected in June but that did little to change bets

on the first rate cut in September. The report follows data

showing a surprise fall in U.S. consumer prices on Thursday.

Traders are betting on a 94% chance of a rate cut by

September, up from 78% a week ago, according to CME Group's

FedWatch.

All three major indexes were headed for weekly gains.

Advancing issues outnumbered falling ones within the S&P

500 by a 8.5-to-one ratio.

The S&P 500 posted 57 new highs and no new lows; the

Nasdaq recorded 156 new highs and 28 new lows.