Stocks closed higher as comments from a Fed governor added to positive sentiment, building on gains from merger activity and Wal-Mart's better than expected profits. A drop in oil prices sent buyers into consumer stocks and other sectors that benefit from falling energy prices.
The Dow Jones Industrial Average, which closed at yet another record high, got a lift from Wal-Mart Stores, which reported solid quarterly earnings. The S&P 500 also closed at a new historical high while the Nasdaq made a new six-year high as a deal between XM Satellite Radio and Sirius helped boost the index.
"The market is up nine months in a row, it is getting a little old hat," said Sam Stovall, chief investment strategist at S&P Equity Research, in an interview with CNBC.com.
"I keep hearing an awful lot of people telling me they have money on the sidelines that they will want to put to work when the market declines, they're waiting for a 5% to 10% pullback."
Also helping stocks were comments from Fed Governor Susan Bies, who told an audience at Duke University the U.S. economy was "basically running at full employment."
"If you can just take one step back and focus on things, everything seems OK," said Mike Driscoll, head of listed trading at Bear Stearns, in an interview with CNBC.com. "I'm definitely playing from the long side."
Every S&P 500 sector except for energy and telecoms traded higher, however, as buyers bid up consumer and financial stocks. Transportation stocks, benefiting from weak energy prices, moved higher with the Dow Jones Transportation Average ending at another all-time high. The Dow Jones Utilities Index also closed at a record high.
On Wednesday, investors will be focusing on the release of the consumer price index, noted S&P's Stovall. "I think (tame) inflation would be a good reason for investors to feel optimistic," Stovall said.
Shares of major oil companies such as Exxon Mobil, BP, Chevron and ConocoPhillips all declined aftercrude oil prices once again dipped below $59 a barrel on the New York Mercantile Exchange as warmer weather in the U.S. likely signaled the end of winter.
Retailers Wal-Mart and Home Depot both issued quarterly results before Tuesday's opening bell. Shares of Wal-Mart rose after the company topped analysts' fourth-quarter profit expectations and issued bullish fourth-quarter earnings guidance. But Home Depot ended slightly lower after the company met profit expectations for its latest quarter but said same-store sales fell sharply.
Mergers activity remains lively as Sirius Satellite Radio and XM Satellite Radio agreed Monday to merge in an all-stock deal that creates a $13 billion company, including debt. XM shareholders will receive 4.6 shares of Sirius for each share of XM.
Meanwhile, highway construction materials maker Vulcan Materials said it will buy Florida Rock for $4.6 billion in a cash-or-stock deal.
The U.S. Supreme Court overturned a $79.5 million punitive-damages award against Philip Morris USA but shares of parent company Altria closed slightly lower.
Shares of JetBlue Airways fell after Morgan Stanley cut its rating on the stock. JetBlue CEO David Neeleman said reimbursements for delayed passengers and other new customer initiatives could cost the company $30 million or more.
European Stocks Close Lower; Asia Ends Mostly Flat
In Europe, London's FTSE-100 the German DAX and the Paris CAC-40 all finished lower. Shares of music group EMI jumped more than 7% after it said it received another approach from Warner Music Group about a possible takeover.
The Bank of Japan (BOJ) starts its two-day policy meeting Tuesday with market players divided over whether it will raise rates to a decade-high of 0.5% from 0.25%. The central bank kept rates steady last month in a split decision.
The Nikkei 225 Average ended just a hair lower as investors booked profits in Shin-Etsu Chemical and other blue-chip stocks. South Korea's Kospi Index ended a touch higher to reach new nine-month highs. Automakers such as Hyundai Motor gained on hopes that the won will continue to weaken against the Japanese yen.