Stocks took the early lead in the market, then oil pulled ahead, but by the closing bell, it was clear: Everybody wins!
Stocks and oil typically move in opposition, but not today. A late-day rally in financials spurred by short covering propelled the Dow to a triple-digit gain, while oil ended near $127 a barrel.
"Oil has come a long way in a short time," said Bruce McCain, senior vice president and head of investment strategy at Key Private Bank in Cleveland. "Our intial take is that this is a bit of a reflexive retracement of oil."
The Dow Jones Industrial Average gained 186.13, or 1.6 percent, to close at 11583.69. For the month, which ends Thursday, the blue-chip index is up 2.1 percent.
The S&P 500 advanced 1.7 percent. The Nasdaq was the lagging index, rising just 0.4 percent, dragged down by Garmin after the gadget maker dispatched a dismal outlook.
Financials AIG , Bank of America and Citigroup had started the day at the top of the Dow leaderboard, then were replaced by oil giants Chevron and ExxonMobil when oil rebounded from its 12-week low, before staging a late-day rally and clawing their way back up the Dow.
When the final bell rang, Chevron and Exxon remained at the top of the Dow leaderboard, but they were followed closely by Alcoa , Bank of America, AIG, Disney and Citigroup.
jumped more than $4 a barrel to settle at $126.77 a barrel, after a surprise drop in US gasoline supplies and the unexpected resignation of Israel's prime minister. Earlier, the EIA reported that crude inventories declined by 100,000 barrels last week to 295.2 million barrels.
McCain said his team thinks the current rebound is probably just a natural knee-jerk after the recent run-up in oil prices and that oil will probably go lower again soon. "The fundamental factors have shifted dramatically in favor of lower oil prices," he said, citing a tapering in demand from China after an initial runup for the Olympics.
"We wouldn't be surprised to see oil go as low as $100 a barrel -- or even lower," McCain said, but specified this retracement could push oil up a lot further before that happens.
Giving an early boost to the market, ADP reported that private employers added 9,000 jobs to their payrolls in July. That came as a surprise to economists, who had expected a decline.
The report is closely watched for insight into the government's jobs report, which is the big data point this week, due out on Friday. Economists surveyed by Reuters expect to see nonfarm payrolls shed 75,000 jobs in July, which would be the seventh straight month of job losses. However, the ADP doesn't have a stellar track record for forecasting what the government reports, so Friday could bring a different surprise. Strategists say one key thing to watch on Friday is the prior month's revisions, which give a better impression of the overall job picture.
Taking a bird's eye view, Paul Nolte, director of investments at Hinsdale Associates, points out that payrolls number has been negative all year, leaving the current 12-month average at roughly zero. "Before we get to the bottom of this recession, expect to see the 12-month average drop to minus-100,000," he said.
"Across the board there are a lot of different markets that are at very critical pivot points and the market is really deciding which way to take it," Donna Heidkamp, senior trading advisor from RJO Futures, told "Worldwide Exchange," adding that stocks are likely to trade sideways and stay choppy all week.
The market was buzzing about two government moves this morning: The Federal Reserve has decided to extend its emergency-lending program for Wall Streetthrough Jan. 30. That was initially slated to end in September. Also, the SEC extended its emergency rule curbing short sellingon major financial firms through Aug. 12.
Shares of Fannie Mae and Freddie Mac advanced 5.3 percent and 3.7 percent, respectively, boosted by the extension on the short-selling rule and the president's approval of the housing-rescue plan.
Weakness seeped into homebuilders after a report showed mortgage applications dropped to the slowest pace since December 2000 last week. Most homebuilders ended down at least 1 percent.