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Major Indexes Hit New Highs for the Year

Stocks pulled off 0.5-percent gain Tuesday after a rocky session in which investors weighed some encouraging economic reports against disappointing earnings from two retailers.

All three major indexes hit new highs for the near: The Dow Jones Industrial Average gained more than 56.61, or 0.6 percent, to close at 9,683.41, its highest close since October. The S&P 500 rose 0.3 percent to close at 1,052.63 and the Nasdaq advanced 0.5 percent to 2,102.64.

Stocks got a boost from Federal Reserve Chairman Ben Bernanke, who said the U.S. economic recession was probably overbut the recovery would be slow and take time to create new jobs.

"From a technical perspective, the recession is very likely over," Bernanke said at a Brookings Institution conference, but he cautioned it may not feel like it's over.

Market pros said the market's rally will likely continue as money from the sidelines is now flowing into the market.

Jim Swanson, chief investment strategist at MFS Investment Management, said the real catalyst will be profits.

"This profit story in Q2 is very impressive ... low job costs are actually boosting corporate profits and we’re gonna see 2 or 3 more quarters of very good profits," Swanson said on CNBC this afternoon. "This is gonna be a business led recovery, not a consumer recovery."

Industrials including Alcoa , DuPont and Caterpillar led today's rally.

General Electric was again among the biggest advancers on the Dow, climbing 4.2 percent to close at $16. Bernstein Research raised its price target on the stock to $17, saying they expect improved margins from the company's NBC Universal unit, the parent of CNBC, late next year and beyond.

Some good news on the consumer front: The government reported that retail sales jumped 2.7 percentin August, more than the 2 percent expected and their fastest pace in three-and-half years. Sales got a boost from the "Cash for Clunkers" program and higher gasoline prices. Core prices also rose but economists said the next few months will tell the real story.

Earnings from retailers showed that it's still a tough environment out there as consumers cut back and competition gets fierce.

Electronics retailer Best Buy missed its targetfor the current quarter as store sales lagged but raised its outlook for the full year, citing stabilizing customer traffic. Its shares fell.

Shares of Kroger also skidded after the grocery chain reported its profit fell and slashed its full-year earningsforecast as price cuts, a response to Wal-Mart's push into the grocery business, cut into margins.

"It's a little bit of conflicting things going on. Best Buy misses the quarter but raises guidance, suggesting things are getting better the second half of the year. Then Kroger comes out and lays an egg," Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets, told Reuters. "It's still a minefield out there," he said.

Businesses continued to pare inventories, which fell 1 percent in July to their lowest level since March 2006. Sales ticked up 0.1 percent. And producer prices climbed 1.7 percent last month, double the expected rate, as gasoline prices rose at their fastest clip in a decade. Plus, the New York Fed branch reported its "Empire State" manufacturing index hit its highest level in two years.

Citigroup proposed a plan for the government to unload some of its 34-percent stake in the company. But shares tumbled nearly 9 percent amid published reports that Citi is also considering a $5 billion secondary offering.

Well-known banking analyst Meredith Whitney said on CNBC this morning that the economy remains weak and will face a big test next monthwhen the government starts to wind down its support programs.

Bank of America shares slipped 1.2 percent following news that a federal judge has rejected a $33 million settlement between the bank and the SEC over Merrill Lynch bonuses and that executives may face charges — and a trial — over their handling of the merger.

An interesting approach overseas: The UK plans to make banks draw up "living wills" that would allow them to be dismantled easily, the Financial Times Reported.

Shares of Capital One skidded 2.4 percent, even after the credit-card provider reported that defaults on card payments fellin August.

MasterCard and Visa gained after both companies reported processed volume declined less in July and August than in the second quarter, supporting the fact that the industry is stabilizing.

In tech land, Intel rose 1 percent as the chip maker said it is shaking up its management team, setting up a three-way race for CEO, according to the Wall Street Journal.

EBayshares climbed 1.3 percent after upgrades from both Piper Jaffray and UBS. Piper analyst Gene Munster said recent changes to the online marketplace could have a "longer-term impact on stabilizing the business" and that data show a slight upside to the September quarter.

And Yahoo shares jumped 5.4 percent after the Internet portal sold its stake in China's top e-commerce company Alibaba.com.

Adobe Systems rose 1.2 percent ahead of earnings from the software maker, due out after the bell today.

President Barack Obama's speech on the financial landscape Monday didn't alarm Wall Street, with stocks making modest gains. Obama, in an interview with CNBC Monday evening, stressed that new oversight and "circuit breakers" for the financial markets are needed.

There are concerns that the markets have already forgotten some of the lessons of the crisis. Rochdale Securities Bank Analyst Dick Bove told "Squawk Box Asia" that investors only need to look to yields on junk bonds to see that "greed" has returned to the markets.

This is a quadruple witching week, meaning four key expirations — stock index futures and options, and stock futures and options — which is likely to put some volatility into the market. For today, the CBOE volatility index managed to hold below 24.

— Reuters contributed to this article.

Still to come:

TUESDAY: Earnings from Adobe after the bell
WEDNESDAY: Weekly mortgage applications; CPI; current account; industrial production; weekly crude inventories; earnings from Oracle
THURSDAY: Housing starts; weekly jobless claims; Philly Fed; Earnings from FedEx
FRIDAY: Quadruple witching

Send comments to cindy.perman@nbcuni.com.