A big rise in bank stocks combined with an influx of bargain hunters Monday helped stocks reverse much of the effects of last week's slump.
Some misgivings over a home builder sentiment report gave way to a feeling that the economy was continuing to form a bottom. A rise in US-traded stocks from India helped kick the rally off, and Wall Street never looked back on its way to posting gains that approached 3 percent as trading wound down.
Investors had been showing nervousness over banks subjected to government stress tests, making the group a leader among last week's losers.
But sentiment shifted Monday.
Bank of America shares gained after Goldman Sachs added the company to its conviction buy list. Citigroup shares also were higher, while Wells Fargo improved after Warren Buffett's Berkshire Hathaway increased its stake in the bank.
Even State Street did well, overcoming an earlier drop in share price that came as the bank announced offerings of non-guaranteed senior notes and common stock to help repay Troubled Asset Relief Program funds.
The market had briefly pared gains following a reading that showed home builder sentiment up for the second month in a row and at the highest level since September.
The National Associated of Home Builders/Wells Fargo Housing Market Index moved 2 points higher in May to 16, a number that met expectations but raised some concern that activity was not improving. The index was at 17 in September 2008.
Toll Brothers led homebuilder stocks higher.
Stocks in India earlier gained more than 10 percent, and those companies that also trade in the US helped push domestic markets up close to 2 percent. Witpro and Tata Motors were among the leaders in that group.
The market again was being helped by a drop in volatility.
The Chicago Board Options Exchange's Volatility Index drifted back towards 30, a point seen as a key measure for the ability of the market to move higher. The Vix hasn't closed below 30 since Sept. 12, 2008, just before the implosion of Lehman Brothers and when the Dow industrials traded at 11,421--26 percent higher than the current level.
Some market watchers, though, were still betting against stocks, reasoning that a further correction will be needed to determine whether the market was not merely in the middle of a bear market rally.
"There seems to be a large consensus of us looking for a correction of more magnitude than we saw last week," Kevin Ferry, of Cronus Futures Management, told CNBC.
Home improvement retailer Lowe's posted a profit of 32 cents per share that, while lower than the previous year, beat analyst estimates. The company also raised both its second-quarter and full-year guidance, sending shares up. Dow component Home Depot also gained on momentum from the news.
AT&T was the worst Dow 30 performer and in fact the only negative issue on the bluechip index.
Cisco was among the leaders of the tech-heavy Nasdaq, which also got support from Overstock and Dish Network.
Goldman's note said the market was absorbing a capital issue BofA issued to meet government stress test requirements, adding that the bank could earn 25 cents per share in the second quarter.
Several other companies were moving following rating changes.
Allegheny Energy fell sharply after Barclays cut the company's price target from $38 to $36, while Goldman Sachs appeared to benefit after Citigroup raised Goldman's price target to $160 from $145.