Stocks ended higher Tuesday after a solid round of earnings reports. But IBM and Goldman Sachs declined.
Investors' risk tolerance seemed to be recovering: Energy, financials and utilities — sectors that took a hit last week — were the day's best performers, while consumer staples and materials were the weakest links.
The Dowrose about 25.01, or 0.2 percent, to close at 11,117.06, led by 3M, Bank of America and ExxonMobil .
The Nasdaq and S&P 500 each gained about 0.8 percent, with the S&P finishing above 1,200 and the Nasdaq cracking 2,500.
Energy stocks got a boost as oil pricesfinished above $83 a barrel. The dollar slippedon improving global risk appetite while gold pricesended above $1,138 an ounce.
The CBOE volatility index, widely considered to be the best gauge of fear in the market, fell back to around 16, after climbing to nearly 20 on Tuesday as investors worried about a market selloff.
Goldman posted earnings of $5.59 a share, well ahead of analyst estimatesof $4.01. Still, Goldman shares fell more than 2 percent, erasing all of Monday's 1.6-percent gain, as investors remained tentative on the company's legal woes.
“Regardless of whether the Goldman story was sprung upon us last week or not, it’s evident that there’s going to be new regulation in the financial sector,” said Art Hogan, chief market analyst at Jefferies & Co. Going forward, he expects the financial sector will operate on less leverage, will be derisked and overregulated.
As a result, Hogan said “there are probably better places to invest,” and recommended the consumer discretionary, technology and energy sectors.
Doubts started to creep in about the strength of the SEC's case against Goldman but the Wall Street titan's problems aren't over yet. The UK financial watchdog, the Financial Services Authority (FSA), said it will launch a formal inquiry into trading practices at Goldman's London office.
Overall bank stocks were mixed, with Bank of America and Citigroup higher.
Two brokerages raised their price targets on Citi — one to $4.75 and the other to $5.
Elsewhere in earnings, Coca-Cola topped expectations but fell short in revenue.
UnitedHealth Group rose after the health insurer blew past forecasts and raised its forecast. Wedbush Morgan initiated coverage of the stock with a "neutral" rating and $35 price target.
Johnson & Johnson also exceeded forecasts for the current quarter but the consumer-products maker slashed its full-year outlookamid weakness in U.S. sales.
IBM was the biggest percentage decliner on the Dow after the tech giant reported stronger-than-expected resultsand raised its outlook but traders sold the news. Some also said margins were slightly disappointing.
Still, a slew of brokerages raised their price targets on IBM stock — anywhere from $135 to $167.
“We’ve underestimated corporate America’s ability to earn money,” said Hogan. “There’s a large amount that investors assumed was priced into the market, but it wasn’t.”
So far, 84 percent of S&P 500 companies that have reported earnings have beat expectations and of those, 65 percent have shown better-than-expected revenues, explained Hogan.
After the bell, reports are due out from Apple and Yahoo . Wall Street is looking for the iPhone maker to report $2.43 a share on $12 billion in revenue. Meanwhile, analysts expect the search engine firm to report 9 cents a share on $1.17 in sales.
Luxury-goods maker Coach and motorcycle powerhouse Harley-Davidson also beat expectations.
Harley was one of the biggest percentage gainer on the S&P 500, up more than 7 percent.
Most of the companies expected to report earnings on Wednesday were trading higher, including Morgan Stanley and Boeing.
Toyota shares fell after the troubled auto maker said it is recalling its Lexus GX 460 SUV model, affecting around 9,400 vehicles in the U.S., after Consumer Reports called it a "safety risk."
Procter & Gamble raised its quarterly dividend 9.5 percent to 48 cents a share.
Meanwhile, drugmaker Novartis said it is cutting about 20 percent of its U.S. headquarters staff, a total of 383 jobs.
Humana jumped after brokerage Wedbush Morgan initiated the stock with an "outperform" rating.
Wedbush started coverage of a slew of other insurers at "neutral," including Aetna , Cigna and Wellpoint .
And on the M&A front, CKE Restaurantsreceived a $12.55-per-share takeover bid from Western Acquisition Holdings and said it will terminate a previous merger agreement with Thomas H. Lee Partners.
No economic numbers are set for release Tuesday. But Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner appeared before the House Financial Services Committee to talk about the circumstances surrounding the failure of Lehman Brothers.
Former Lehman Chief Executive Richard Fuld said in a prepared statement that he learned of the firm's use of Repo 105, a controversial accounting technique, only a year after the bank filed for bankruptcy in September 2008.
Advancers outpaced decliners, roughly 4 to 1, on the Big Board.
This Week:
TUESDAY: Earnings from Apple & Yahoo after the bell
WEDNESDAY: Weekly mortgage apps; weekly crude inventories; Earnings from AT&T, Boeing, McDonald's, Morgan Stanley, United Technologies, Wells Fargo, Altria, eBay, Starbucks, Qualcomm & Sandisk
THURSDAY: PPI; weekly jobless claims; existing-home sales; Earnings from Pepsi, Verizon, Fifth Third, PNC Bank, American Express, Microsoft & Capital One
FRIDAY: Durable-goods orders; new-home sales; Earnings from Travelers, Honeywell, Schlumberger & Xerox
Send comments to cindy.perman@nbcuni.com.
