Stocks advanced Wednesday, led by consumer discretionary stocks, as encouraging reports on jobs and the services sector fueled hopes for the recovery.
Both the Dow and S&P ended at their highest levels since mid-May: The Dow Jones Industrial Average rose 44.05, or 0.4 percent, to close at 10,680.43, while the S&P 500gained 0.6 percentto close at 1,127.24.
The Nasdaqwas the best performer of the three, up 0.9 percent to 2,303.57, its highest close since June.
The CBOE volatility index, widely considered the best gauge of fear in the market, was around 22 at the closing bell.
“We still have a little more upside left,” said Marc Pado, strategist at Cantor Fitzgerald. “We will see some improvement in the jobs data in the fourth-quarter.”
Pado said he expects the S&P 500 to reach 1,250 by year-end.
Consumer stocks were higher, with Home Depot and Kraft up 1 percent or more.
Bank stocks were largely mixed, but Goldman Sachs shares rose following news that the firm plans to spin off its proprietary trading division and it could happen as early as this month.
Bank of America fell after analyst Dick Bove of Rochdale Securities said Tuesday the financial giant is in the process of shedding some $500 billion of assetsas it looks to streamline operations and comply with new financial regulations.
Meanwhile, financial analyst Meredith Whitney offered a grim outlookon the health of the sector, saying US banks are still suffering from poor revenue growth and will continue to do so at least into next year.
"It was a quarter of real revenue shortfalls, real revenue weakness, and I think that is a persistent theme that we’re going to see throughout the next several quarters," Whitney told CNBC.
Techs were in the spotlight after a front-page article in the Wall Street Journal suggested that, while consumers may be cutting back on some spending, they're prioritizing spending on new technology.
Google rose following news that the company's Android operating software for smartphones has become the top sellerin the category, surpassing both Research In Motion and Apple.
Meanwhile, Motorola advanced following news that the company is working with Verizon on a an iPad rivalthat would allow consumers to watch TV on it.
Microsoft was at the back of the Dow pack after Global Equities Research downgraded its rating on the stock to "equal weight" from "overweight."
Intelslipped after the chip giant reached a settlement with the SECafter a decade-long antitrust case.
In the day's economic news: The ISM reported its gauge of the services sector rose to 54.3in July from 53.8, topping expectations.
The report was an encouraging sign, particularly after the ISM manufacturing report on Monday showed growth, Joel Naroff of Naroff Economic Advisors wrote in a note to clients. Still, he said, consumers remain stuck in a "show me" state.
Jobs are the main thing holding back consumers and earlier today, two reports painted a somewhat better employment picture for June.
ADP said the private sector added 42,000 jobs in the month, while Challenger, Gray and Christmas said planned layoffs rose 6 percent but were below the pace of 2009.
This comes ahead of the government's July jobs report, due out on Friday. Economists expect to see that 65,000 jobs were lost from nonfarm payrolls, according to the latest Reuters survey.
The latest round of earnings also offered some encouragement: Pulte Group , the No. 2 U.S. homebuilder, reported its first profit since 2006and handily beat expectations.
Whole Foods reported its profit jumped 88 percent and revenue rose, offering the latest evidence that the higher end consumer is coming back. The grocery chain said more customers are trading up and, when it started offering coupons, shoppers who used them spent double the amount of the average shopper.
This came after Starbucks , which has a similar customer base, last month reported its earnings jumped 37 percent as revenue improved.
Time Warner and CBS reported higher revenue, an encouraging sign that the media sector may be starting to recover.
Priceline shot up 22 percent to an all-time high above $285 after the online-travel site beat earnings expectations and delivered an upbeat forecast. Also, at least eight brokerages raised their price targets on the company.
After the bell today, reports are due out from News Corp and Tesla Motors .
BP shares fell as the oil giant said its “static kill” operation, which began on Tuesday, appears to have succeeded in stemming the Gulf oil leak.
Meanwhile, US scientists estimated that almost three-fourths of the oilfrom the BP spill is gone from the Gulf of Mexico through skimming, burning and evaporation.
Barnes & Noble shares soared more than 20 percent after the bookstore chain said it was putting itself on the block and may get an offer from founder Leonard Riggio to take the company private. Goldman Sachs raised its rating on the stock to "neutral" from "sell" and bumped up its price target on the stock to $15.
Leap Wireless shares plunged more than 14 percent after at least five brokerages cut their price targets on the low-cost wireless carrier. This comes after the firm posted a wider-than-expected loss as customers quit its service.
The dollar rebounded from an eight-month low against the yen and rose against the euro as the encouraging economic reports prompted some traders to unwind their bets against the U.S. currency.
Volume was light, with 975 million shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, more than 3 to 1.
Still to Come:
THURSDAY: July chain-store sales; Fed hearing on new mortgage regulations; BoE announcement; ECB announcement; weekly jobless claims
FRIDAY: Fed hearing on new bank regulations; July jobs report; consumer credit
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