The Fed's latest move to add liquidity to credit markets propelled stocks to their best one day performance in five years, and the euphoria is likely to spill into Wednesday's markets.
It's also important to note that key indices are returning to levels they were at just last week, and already some traders are questioning how long the upswing will last.
"The Fed is making a remarkable effort here and is throwing a tsunami of money at the market - $200 billion promised this morning, $200 billion from last week," says Art Cashin, director of floor operations for UBS. "They're going to take the paper that's under question and lend ... Treasury bills." Cashin made those comments on "Closing Bell," adding that many of the brokers who could benefit from this are primary dealers and qualify to participate.
Cashin said the market's move reverses some of the drubbing stocks have taken in the last couple days. "I'll give it a couple days and see if they (stock prices) start to come back in. There's a lot of resistance in the S and Ps ... between 1315 and probably 1320. We're right up there now. Let's see if they start to hold them back."
Birinyi Associates reviewed Tuesday's action, comparing it to other strong days since the start of the bull market in October, 2002. It said that on average, the day after 15 other days when the Dow gained at least 2.5 percent, the market showed losses within the first half hour on 10 of those days times. But eight of the 15 days showed closing gains, ranging from 0.17 percent to 4.20 percent, for an average gain of 0.06 percent.
In Tuesday's market, financials were the best performers, with the S&P financial sector springing 7.4 percent higher. Once more, negative rumors surrounded Bear Stearns which sunk dramatically during the trading day. But those rumors of insolvency were once again knocked and the stock recovered to finish higher.
Investor Joe Lewis, who has a near 10 percent stake in the firm, also told CNBC's Scott Wapner after the bell that he is not a seller of the stock, squashing one of the rumors circulating among trading desks earlier. Bear Stearns CEO Alan Schwartz will appear on "Squawk on the Street" Wednesday at 9 a.m. with David Faber.
The Dow was up 416 points, or 3.15 percent to 12,156, its biggest one day gain since March, 2003. Interesting that this is just the third time the Dow stayed positive for an entire day since the start of the year. The Nasdaq rose 86 points, or 4 percent, to 2255, its biggest percent gain since March, 2003. The S&P was up 47 points or 3.7 percent to 1320, its biggest percent gain since October, 2002.
The 10-year Treasury fell, raising its yield to 3.596 percent. The two-year fell as well, raising its yield to 1.733 percent. The dollar rose 0.2 percent against the euro and 1.7 percent against the yen. Gold rose $4.30 per troy ounce to $974.20.
Oil markets continue to draw in investors, ahead of Wednesday's oil inventory data, released at 10:30 a.m. NYMEX crude closed at $108.75, a fresh high. During the trading day, it has traded as high as $109.72 per barrel. Gasoline gained another 1.12 cents to $2.7261 per gallon.
M.F. Global vice president of energy Mike Fitzpatrick said there's a lot of newcomers rushing into the energy market. "Pension funds, university endowments ... money's pouring in there. They're probably going to be right overall, but it doesn't mean we won't have a pull back," he said. "There's a big pool of holders that have very little resolve. Those are the people that will jump ship first."
A few retailers report earnings Wednesday, including Talbots , American Eagle , Hot Topic and Gymboree .
The Treasury budget is released at 2 p.m.