Wall Street stock indexes closed higher Friday, on bets that the U.S. Federal Reserve will cut interest rates in September, while big banks fell after reporting mixed results.

Some of the market's most valuable companies bounced back after dipping in the previous session, with rallies by Apple and Nvidia.

JPMorgan Chase's second-quarter profit was lifted by rising investment banking fees. However, shares of the world's largest bank dipped.

Wells Fargo tumbled after the lender missed estimates for quarterly interest income, while Citigroup fell despite reporting a surge in investment banking revenue.

The small-cap Russell 2000 rallied for a third straight day and reached the highest since 2022, while the S&P 400 Mid Cap index also jumped. 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.

According to preliminary data, the S&P 500 gained 31.92 points, or 0.57%, to end at 5,616.46 points, while the Nasdaq Composite gained 113.58 points, or 0.62%, to 18,396.98. The Dow Jones Industrial Average rose 260.02 points, or 0.65%, to 40,013.77.

With stock indexes trading around record highs, investors are betting on strong profit growth from companies beyond Nvidia 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."

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.