The S&P 500 and the Nasdaq Composite closed at new record highs Tuesday after Federal Reserve Chair Jerome Powell said inflation seems to have improved in recent months, though the job is not done yet.

The S&P 500 and the technology-heavy Nasdaq rose 0.1% each to 5,577 and 18,429.3, respectively. The Dow Jones Industrial Average fell 0.1% to 39,292. Financials led the gainers among sectors, while materials saw the steepest decline.

"More good (inflation) data would strengthen" the case for potential monetary policy easing in the US, Powell said in prepared remarks to the Senate Committee on Banking, Housing, and Urban Affairs.

"The (Federal Open Market Committee) has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%," he said. Although first-quarter inflation data didn't support "such greater confidence," the most recent readings have indicated some modest further progress, Powell added.

In a bid to tame inflation, the FOMC increased its benchmark lending rate by 525 basis points from March 2022 until July 2023, but has since kept interest rates unchanged, with its latest pause coming last month.

Powell is scheduled to appear before the House Financial Services Committee Wednesday.

The US 10-year yield rose 2.7 basis points to 4.30% Tuesday, while the two-year rate was little changed at 4.62%.

In economic news, small business optimism in the US rose to its highest level this year in June, though inflation remained the most pressing problem for owners, according to the National Federation of Independent Business' latest survey.

West Texas Intermediate crude oil dropped 0.9% to $81.58 per barrel.

In company news, Incyte (INCY) shares rose 4.4%, the best performer on the S&P 500, as RBC raised its price target on the stock to $61 from $60 while maintaining its sector perform rating.

Albemarle (ALB) saw the steepest decline on the S&P 500, down 8.8%, as UBS, Oppenheimer and Baird cut their respective price targets on the stock.

Helen of Troy (HELE) reduced its full-year outlook after posting lower-than-expected fiscal Q1 results amid weak consumer demand. The consumer product company's shares plunged nearly 28%.

Gold increased 0.3% to $2,370.8 per troy ounce, while silver rose 0.6% to $31.09 per ounce.