The benchmark S&P 500 and the Nasdaq hit record highs Wednesday, underpinned by gains in megacap companies as investors were increasingly confident that the Federal Reserve could restart its monetary policy easing cycle next month.

Signs that U.S. tariffs on imports have not fully filtered into headline consumer prices</ came as a relief for investors this week as they scour for insights on the impact trade uncertainty has had on the economy.

Despite data showing underlying price pressures were on the rise, markets also factored in recent weakness in the job market and a shake-up at the Federal Reserve as they leaned in favor of a potential dovish move by the central bank in September.

Traders are now fully pricing in a 25 basis points interest rate cut, according to the CME's FedWatch Tool, up from 89.2% last week. The central bank last lowered borrowing costs in December.

"We're pretty much certain that we'll have at least 25 basis points of rate cuts in the month of September," said Thomas Hayes, chairman at Great Hill Capital LLC in NY, and noted that the Fed would have to respond to labor market weakness.

At 11:41 a.m. EST, the Dow Jones Industrial Average rose 3335.44 points, or 0.75%, to 44,794.05, the S&P 500 gained 10.61 points, or 0.16%, to 6,456.37 and the Nasdaq Composite gained 26.57 points, or 0.12%, to 21,708.47.

Ten of the 11 S&P 500 sectors were higher, led by consumer discretionary that gained 1.1%, with Amazon.com and Tesla up over 1.5% each.

The blue-chip Dow was less than 1% away from an all-time high and the Russell 2000 index, which tracks rate-sensitive small-cap companies, added 0.8% to hit a six-month high.

"Rates coming down will also help (small-cap companies) refinance their debt loads, which is very positive for a lot of the laggard stocks that haven't moved as much in this big move off the April lows," Hayes said.

The CBOE volatility index, popularly referred to as Wall Street's fear gauge, dropped to 14.46 — its lowest since January.

Later in the day, investors will scrutinize remarks of a number of policymakers, especially Chicago Fed President Austan Goolsbee — a Federal Open Market Committee voting member this year.

Earnings are also in focus. CoreWeave, which is backed by Nvidia, slumped 12% after the AI data center operator reported a bigger-than-expected quarterly net loss.

Eyes are also on developments surrounding the China revenue-sharing deal the U.S. government signed with chipmakers like Nvidia and Advanced Micro Devices, which the White House said could be expanded to others in the sector. Nvidia was flat, while Advanced Micro Devices rose 5.8%.

Paramount Skydance jumped 19% and is up over 24% this week. The company won exclusive broadcasting rights to the Ultimate Fighting Championship for seven years earlier this week.

In geopolitics, Donald Trump and European leaders held a virtual meeting on the Russo-Ukraine conflict, two days before the U.S. president meets Russian President Vladimir Putin.

Advancing issues outnumbered decliners by a 3.82-to-1 ratio on the NYSE and by a 2.45-to-1 ratio on the Nasdaq.

The S&P 500 posted 32 new 52-week highs and two new lows, while the Nasdaq Composite recorded 110 new highs and 36 new lows.