Stocks recovered from a lower start Tuesday as consumer confidence hit its highest level in eight months and a broker upgrade on Apple buoyed the Nasdaq.
Getting the market off to a jittery start after the three-day weekend, the decline in housing prices showed no signs of letting up and there were reports that North Korea fired two short-range missiles.
Still, the Dow Jones Industrial Average was up about 200 points, or more than 2 percent. The S&P 500 and Nasdaq also gained, with the Nasdaq logging the best gains of the three indexes.
This comes after a late selloff sabotaged Friday's rally amid concerns about a possible downgrade of the U.S.'s credit rating. For the week, stocks finished slightly higher. Financial markets were closed Monday for the Memorial Day Holiday.
Traders said last week's drop is what set the stage for today's rally.
"People came in ready to buy stocks after the move down last week," Michael James, a senior trader at Wedbush Morgan, told Reuters. "As soon as the consumer confidence numbers came out, everything just took off."
The Conference Board's consumer-confidence index jumped to 54.9 in Mayfrom a revised 40.8 in April, well above the 42 economists had expected.
Apple rose after Morgan Stanley upgraded the iPhone and iPod maker to "overweight," saying the company has emerged as the clear leader in the battle over the mobile Internet and that the iPhone will drive earnings growth in the next few years.
Meanwhile, BMO Capital Markets raised its price target on Apple rival Research In Motion to $82 from $72, citing a strong product mix of 3G devices set to launch this year and lower operating costs.
General Motors went from the bottom of the Dow pack to the top following news that bondholders are likely to reject the company's proposalfor a debt-for-equity swap, setting the stage for the biggest industrial bankruptcy in U.S. history.
Bondholders have until midnight to make their final decision on the tender. Sources said if GM fails to get their approval, the company will likely file for bankruptcy sometime this week.
General Electric joined the rebound after a selloff in morning trading as CEO Jeff Immelt said growth will be harder to achieve in the next few years as any economic recovery is likely to be slow. GE is the parent of CNBC.
Bank stocks rallied after a mixed start. Citigroup , JPMorgan and Wells Fargo were higher throughout the day, Bank of America and SunTrust came late to the party.
The jump in consumer confidence gave a shot in the arm to the retail sector which has seen its recent rally start to fizzle amid doubts about the recovery in spending.
JCPenney , Kohl's and Tiffany were all up more than 6 percent. Gap rose 4 percent.
Procter & Gamble advanced after BMO Capital Markets upgraded its rating on the stock to "outperform" from "market perform," saying the stock would be on its way back up as soon as uncertainty surrounding its earnings lifted.
But a housing report was a sober reminder that the economy isn't on the mend yet: The S&P Case-Shiller home-price index tumbled 19.1 percentin the first quarter, the biggest quarterly drop in the measure's history. For the month of March, 15 of 20 major metropolitan areas posted double-digit declines from a year earlier. Nationwide, home prices are at 2002 levels.
Market pros said traders are going to be focused in the coming weeks on some key points of the economy, including the dollar and rising oil prices, as well as geopolitical tensions that could derail any recovery.
A greater test of market sentiment comes later in the week with the U.S. Treasury’s note auctions totaling $101 billion. The government will sell two-year notes on Tuesday, five-year notes on Wednesday and a seven-year paper on Thursday.
Crude oil dropped about a dollar, trading between $60 and $61 a barrel ahead of OPEC's meeting Thursday to decide about oil-output levels. Many believe the oil cartel will leave production unchanged as oil prices and demand have recently made a comeback.
Still to Come:
WEDNESDAY: Weekly mortgage applications; existing-home sales; Earnings from Dollar Tree, Staples and American Eagle
THURSDAY: Weekly jobless claims; durable goods; new-home sales; weekly crude inventories; Fed's Fisher speaks; Earnings from Costco, Sears and Dell
FRIDAY: GDP; Chicago PMI; University of Michigan/Reuters consumer sentiment; earnings from Tiffany
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