US equities rose on Tuesday as Bank of America and Morgan Stanley reported strong earnings, and a rally in stocks linked to artificial intelligence resumed.

Bank of America reported a surprise profit from its core Wall Street operations. Morgan Stanley executives expressed optimism about the future. In technology, Microsoft set a high price for new AI products, boosting the sector.

The S&P 500 gained 0.7%, while Treasury yields recovered from earlier losses, as corporate updates were accompanied by disappointing economic data. Industrial production and retail sales figures fell short of expectations, and traders are now fully pricing in a quarter-point increase at the Federal Reserve's meeting next week.

Traders have reduced their bets on how high the US overnight benchmark rate will go due to signs of slowing inflation and an improving economic picture. However, policymakers' quarterly forecasts show a median expectation of two more quarter-point increases this year to bring inflation in line with the Fed's target.