Stocks posted an impressive late-day rally boosted by positive sentiment over improvement in new home sales and strong earnings reports.
Though the summer trend of anemic market volume continued, Wall Street churned out yet another impressive day that sent the Dow positive for the year and the Standard & Poor's 500 to a critical close above its 200-day moving average.
So short-covering or not, traders were more than happy to accept another strong trading day that has the market on the path for its best month in a year.
"Volume is still horrible, but I think we've got to get used to this. This is what you call the 'new normal,'" said Dave Rovelli, managing director of US equity trading at Canaccord Adams. "So now it would be nice to see some fund inflows, from bond funds to stock funds."
Investors have yet to show consistent signs of moving from stock funds to bond funds. The most recent week's data saw outflows of $481 million from equity funds and $3.1 billion of inflows into bond funds, according to Lipper.
Money market assets, however, slipped below $2.8 trillion for the first time since the financial crisis began, the Investment Company Institute reported.
Investors looking for glimmers of economic hope have found them during earnings season.
First Call has raised its aggregate S&P 500 earnings outlook now to $20.63 from $19.60, which is about 5 percent higher than the first quarter.
And companies are beginning to tout a better future.
FedEx raised its outlook and backed the notion that economic pessimism may have been overdone.
The company's fortunes are frequently tied to economic performance as its business in delivering packages by air and ground is indicative of US company activities. FedEx said it has seen higher-than-expected volume in its Express and Ground businesses and now expects to earn $4.60 to $5.20 per share—20 cents higher on each end of the forecast.
"Everybody knew earnings would be great but they were better than expected," Rovelli said. "You have a cheap market going forward. The $64,000 question is, are they still going to grow earnings at this rate or at least growing earnings with all the headwinds?"
The other major piece of news for the day saw new housing sales rise 23.6 percentin June and inventory hit a 42-year low.
Analysts had worried that the stockpiling of houses on the market would keep prices depressed and hold down the market.
Home builders rallied sharply on the news, with Hovnanian and Beazer showing the strongest percentage gains. The SPDR Homebuilder exchange-traded fund reflected the positive sentiment for the industry.
That reaction came even amid concern that the data were being influenced by leftover effects of the homebuyer tax credit, which expired in April.
In a note to clients, Nomura Securities called the housing numbers "'noisy" and noted that "the housing sector is facing unprecedented weakness in demand."
Industrials and consumer discretionary led the S&P 500 higher Monday while consumer staples, technology and materials were the chief drag on the broad index, though all 10 of its sectors finished in positive territory.
Bank of America and CNBC.com-parent General Electric led Dow stocks. Wal-Mart was the only loser on the bluechip index.
In other news, US-traded shares of BP were higher amid speculation about whether CEO Tony Hayward is about to lose his job. Multiple reports said Hayward will be stepping down, but the latest statement issued by the company says Hayward remains CEO and has the full confidence of the Board and senior management. London-traded shares of BP also gained.
Ford began a high-profile marketing campaign Monday for the redesigned Ford Explorer, which the automaker hopes to be the symbol of a new generation of fuel-efficient SUVs.
Elsewhere, Goldman Sachs rebounded after falling earlier on news that the Financial Crisis Inquiry Commission may bring in independent auditorsto scrutinize the Wall Street giant's derivatives trading, according to a report in the Financial Times.
Earnings continued to impact the market, with shares of beauty care products maker Alberto Culver and diversified industrial company Roper Industries both gaining on positive surprises.
Market breadth was strongly bullish, with gainers beating losers more than 4 to 1. New York Stock Exchange volume was 87 percent positive, but total volume was extremely light as barely more than 1 billion shares changed hands.
Oil prices surrendered some of their gainsfrom last week in the anticipation of heavy weekend storms. Treasurys were little changed despite the stock gains, with the 10-year yield at 3.00 percent luring some buyers. The US dollar lost about 0.5 percent against a basket of foreign currencies.