Wall Street extended its rally Tuesday as a spate of economic data appeared to support the case for the U.S. Federal Reserve to implement its third and final rate cut of the year in December, while softness in the tech sector limited the Nasdaq's gains.

All three major U.S. stock indexes closed in positive territory, with the blue-chip Dow out front.

But sagging shares of artificial intelligence frontrunner Nvidia limited the Nasdaq's advance.

An influx of economic data was released, much of it supporting views that the Federal Open Market Committee will reduce its key Fed funds target rate by 25 basis points at its upcoming monetary policy meeting, but official reports were stale due to delays related to the recent protracted government shutdown.

The Commerce and Labor departments issued September reports on retail sales and producer prices, respectively, which showed spending softened and that inflation continued to cool.

More recent data from the Conference Board showed a worse-than-expected deterioration of consumer confidence, with near-term expectations tumbling nearly 12%.

"At the last Fed meeting, (Fed Chair Jerome) Powell pretty much said (the Fed) would be on hold" at its next meeting due to a lack of economic data, said Paul Nolte, market strategist at Murphy & Sylvest in Elmhurst, Illinois. "Then we had Fed governors speaking and we've gone from 'we're not going to do anything in December' to 'we need to cut in December because we're seeing some serious weakening in the job market.'"

Financial markets agree, and are currently pricing in an 84.7% likelihood of that happening, compared with 50.1% a week ago.

That probability has gained strength in recent days following dovish remarks by New York Fed President John Williams and Fed Governor Christopher Waller, among others.

U.S. Treasury Secretary Scott Bessent said there was a good chance U.S. President Donald Trump will name his pick for Powell's successor before Christmas, with White House economic adviser Kevin Hassett widely seen as a likely frontrunner.

"We have an idea who the next Fed chair might be and he's on the dovish side," Nolte added. "So I think the markets are feeling pretty good that interest rates are on the way down throughout 2026."

According to preliminary data, the S&P 500 gained 60.98 points, or 0.91%, to end at 6,766.10 points, while the Nasdaq Composite gained 154.19 points, or 0.67%, to 23,026.19. The Dow Jones Industrial Average rose 665.94 points, or 1.43%, to 47,114.21.

While softer-than-expected retail sales data and the dour consumer confidence reading raised concerns over the health of the consumer, a smattering of generally positive retail earnings gave a boost to the S&P 500 retail index.

Department store chain Kohl's and clothing retailer Abercrombie & Fitch surged after the companies hiked their annual earnings forecasts.

But Burlington Stores tumbled after third-quarter revenue missed estimates. Alphabet's shares gained after the Information reported Meta Platforms was in discussions to use Google's AI chips in its data centers from 2027 and rent chips from Google Cloud by next year. U.S.-listed shares of Alibaba slipped despite the Chinese e-commerce firm's quarterly revenue beat.

Cryptocurrency exchange shares Coinbase and Strategy Inc both dipped in the face of ongoing bitcoin weakness.